(CercleFinance.com) – Wall Street does not appreciate the tensions in the Middle East (no conflagration this Wednesday while the two camps blame each other for a strike – deliberate or accidental – on the Baptist hospital in Gaza) , and even less the tension in rates.
The ambient nervousness is clearly reflected in the ‘VIX’ which recovered by +7% towards 19.1/19.2E and is flirting with its recent records of October 13.
Yields on T-Bonds are breaking records 16, 17 and even 22 years old (depending on their maturity).
The cost of a ’30-year’ mortgage loan just exceeded the 8% mark on October 18 (compared to 2.6% at its lowest at the end of 2020), which makes the richest 10% of Americans the only buyers still in the running since they are able to do without credit.
The heaviness increased over the hours: in the end, the Dow Jones index lost around -1%, the S&P500 -1.34% (to 4,314), the Nasdaq Composite -1.62% (to 13,315) and the Russell-2000 which seemed to want to take its revenge on the 3 other indices at the start of the week suddenly fell by -2.1%.
Small and medium-sized stocks are – once again – the most vulnerable to rising rates, with ‘technos’ (cash consumers) following closely behind.
The key to this decline session therefore lies in the rise in yields on Treasury bonds which have continued to rise over the hours, and including after the publication of private home construction starts in the United States, reinforcing the prospect of the Fed maintaining rates at a high level for many quarters.
The cost of credit continues to rise and this penalizes the auto sector which is also facing persistent strikes, hence the fall of Lucid -9.4%, Tesla -4.8%, Gal Motors -2 .8%.
Bad day also for stocks in the health sector with Walgreen -7%, Astra Zeneca -5.8%, Pfizer -4.1% (which has just set the cost of the anti-Covid treatment ‘Paxlovid’ at $1,390) .
The Nasdaq fell in the wake of ‘tourism’ stocks (tensions in the Middle East oblige) with Carnival -6.5%, Alaska Air -5.2% then ‘semiconductors’ (sanctions against China oblige) with ASML -4 .2%, Nvidia -4%, Marvel tech -3.2%, CSX -2.2%.
A downside all the same in this gloomy picture with the post-closing rebound of Tesla shares (+3%) which misses the consensus in terms of turnover but maintains its sales target of 1.8 million vehicles.
Netflix soared +12% after publication of results
quarterly growth higher than expected, the announcement of an increase in its prices and above all a number of new subscribers which defies all predictions with +8.76 million instead of the expected 5.75 million.
But the ‘fact of the day’ and the undisputed ‘market mover’ remains the deterioration of Treasury bonds whose yield has risen well beyond the levels before the Hamas terrorist attack (re-test of the October 4 yield peak) .
The ’10 year’ jumped by +7.3 points towards 4.928%E (the 4.88% at the beginning of October have been erased, 5.000% is now very close), the yield on ‘2 year’ US Treasury bonds has reached 5.24%, a new high since 2006, the ’30 years’ recrossed the 5% mark with +7 points at 5.02% (at its highest since October 6 and especially since June 2007).
With this yield curve structure, the cost of financing the US debt (the amount of interest paid) now exceeds $1,000 billion year-on-year, i.e. the equivalent of 4% of US GDP ($25,400 billion). ), which may not exceed +2% in 2024.
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