US Stock Indices Fail to Continue Rising: US stock indices have recently experienced sharp fluctuations,
failing to maintain upward momentum due to weak demand in a 10-year Treasury bond auction.
This article reviews the main events and changes in the US market during this period, highlighting investor reactions and their effects.
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Stock and Bond Performance
Weak Bond Demand
US stock indices failed to continue their rise after a weak auction for $42 billion in Treasury bonds
revealed market fragility in the wake of historical volatility.
The S&P 500 Index lost its gains following an increase driven by dovish signals from the Bank of Japan.
Investors shunned the 10-year Treasury bond auction, causing yields to rise significantly above the pre-auction guidance level.
The weaker-than-expected demand indicated that the recent rally might have ended.
Treasury bonds also faced pressure as 17 high-quality issuers rushed to offer $31.8 billion in debt,
the highest US investment-grade issuance this year.
Emotional Control
Mark Hackett of Nationwide says recent events were a “perfect lesson” on how emotions drive market movements,
especially when sentiment and positioning are almost universally positive globally.
“Stocks remain vulnerable,” according to Fawad Razaqzada of City Index and Forex.com,
adding, “More evidence of a bottom forming is needed to entice bullish speculators back into the market.
Overall, sentiment remained cautious. Many people were not confident buying stocks during this recent dip,
especially with next week’s upcoming US Consumer Price Index announcement.”
Stock and Bond Performance
The S&P 500 Index fell by 0.8% after rising nearly 2% earlier in the session.
Nvidia Corp led the decline in significant company stocks. Super Micro Computer’s stock price dropped due to disappointing earnings.
Airbnb’s stock plummeted amid weak forecasts. Micron Technology resumed its buyback program.
Yields on 10-year Treasury bonds rose six basis points to 3.95%.
The Japanese yen’s value fell by 2%. The Mexican peso led a rally in emerging markets,
easing pressure on currencies hit as investors abandoned yen-funded bets on high-risk assets.
Oversold Territory
Despite the correction, JPMorgan strategists say there is little evidence
that stocks have entered oversold territory as they did in October 2023, for example.
In a Wednesday note, Nikolaos Panigirtzoglou and colleagues wrote,
“In our global equity allocation calculations and returning to post-2015 levels,
stock prices need to fall an additional 8% from their current levels.”
Previous stock gains were supported by reassurances from Japan following
massive stock price swings in the country last week.
These moves were exacerbated by the belief that the Federal Reserve would cut interest rates more aggressively,
prompting traders to quickly unwind yen-funded carry trades,
including crowded positions in US tech stocks.
Recession Fears
Markets were thrown into turmoil due to recent weak US data.
However, according to the Franklin Templeton Institute, it is still too early to suggest the economy is heading towards a contraction.
Stephen Dover wrote that it “makes sense” to take some profits after the significant rise in Treasury bonds.
According to Goldman Sachs strategists, US Treasury yields will likely be too low without
“broad-based evidence of sharp deterioration in either the labor market or market functioning.”
William Marshall and Bill Zhu wrote, “The reason for a meaningful rise from current levels is that one or both of these risks materialize”
and “With more moderate outcomes, we believe average yields are likely to be higher than current levels.”
Lowell Cumbernoll of FHN Financial sees Treasury yields comfortably above their lows on Monday,
indicating a sense of calm after financial markets were thrown off balance earlier this week.
He said, “It’s too early to declare an end to the turmoil,
but Treasury yields could drift lower during August’s thin trading and lack of data for the rest of this week.”
Performance of Key Indices
The S&P 500 Index fell 0.8% at 4:04 PM New York time.
The Nasdaq 100 Index declined 1.2%.
The Dow Jones Industrial Average dropped 0.6%.
The Bloomberg Dollar Spot Index rose 0.1%.
Bitcoin fell 3% to $54,848.88.
Ether dropped 5.7% to $2,348.53.
Gold fell 0.2% to $2,386.65 an ounce.
US Stock Indices Fail to Continue Rising
