Wall Street took a hit mid-week. The Dow Jones finished 350 points lower, a sharp reversal from its intraday low where it had shed more than 600 points. The culprit? Bond yields. The US 10-year treasury yield surged to 5.35% during the session, marking its highest level since 2002. That spike sent shockwaves through the market, particularly hitting banking stocks hard as traders priced in the cost of higher interest rates for borrowers.
But the market didn’t stay down. A $39 billion auction of 10-year notes attracted what officials called "strong" demand, cooling the yields slightly and triggering a relief rally in the second half of the session. However, the US Treasury had to pay a 5.3% yield on the sale—the highest since 2000. The debt machine is still running: $58 billion in three-year notes went out on Tuesday, and another $22 billion in 30-year notes is scheduled for Thursday.
The driver behind the yield spike is clear from the latest Federal Reserve minutes. "Most participants assessed that another increase in the target range for the federal funds rate would likely be appropriate by year end," the document stated. No specific date was given, but the Fed has two remaining meetings: October 28 and December 9. Traders are now parsing every hint from officials, with St. Louis Fed Chief Alberto Musalem scheduled to speak later this week.
Corporate earnings offered mixed signals. Levi Strauss reported Q3 revenue in line with expectations, but its EPS beat the consensus. The company raised its full-year EPS outlook, citing tariff refunds, but cut its sales forecast to 7%, the low end of its previous 7% to 7.5% range. The stock didn’t care. It fell 5% in regular trading and ended 2% lower in extended hours.
Oil prices held steady, a non-event given a storm in the Gulf of Mexico knocked out over 5,100,000 barrels per day—a quarter of regional output. Investors will turn their attention to initial jobless claims and PepsiCo’s quarterly results later today, looking for confirmation on whether the inflation scare is over or just the beginning.