Stocks tumbled on Tuesday as Treasury yields hit their highest levels since 2007, raising concern higher interest rates would freeze the housing market and tip the economy into a recession.
The Dow Jones Industrial Average lost 430.97 points, or 1.29 per cent, for its worst day since March. The 30-stock index ended the day at 33,002.38. The S&P 500 slid 1.37 per cent, touching its lowest level since June during the session and closing at 4,229.45. The tech-heavy Nasdaq Composite dropped 1.87 per cent to end at 13,059.47 as growth stocks saw some of the biggest losses because of the rise in rates.
With Tuesday’s losses, the Dow went into the red for the year, off by 0.4 per cent. The broader S&P 500 is still up 10 per cent for 2023.
Amongst the losses, there was a massive M&A deal that took place overnight. Eli Lilly and Co is set to acquire Point Biopharma Global for $1.4 billion, granting them access to experimental cancer therapies with precise targeting capabilities. The deal offers an 87 per cent premium to Point Biopharma Global shareholders at $12.50 per share in cash.
The 10-year Treasury yield last traded at 4.8 per cent, reaching its highest level in 16 years. The benchmark yield has surged in the past month as the Federal Reserve pledged to keep interest rates at a higher level for longer. The 30-year Treasury yield climbed to 4.925 per cent, also the highest since 2007. The average rate on a 30-year fixed mortgage neared 8 per cent.
Stocks traded inversely to bond yields throughout the day, moving lower each time as rates spiked. The latest catalyst for the rate boost was the release Tuesday of the August job openings survey, which signalled a tight labour market. The survey showed 9.6 million open roles in the month. Meanwhile, economists polled by Dow Jones had anticipated 8.8 million jobs. A strong labour market is allowing the Fed to tighten policy without fear it is going too far.
The Volatility Index, known as the VIX, briefly rose above 20 in late morning trading on Tuesday, reaching its highest level since late May. The VIX is a measure of expected stock market volatility over the next 30 days, and it is often seen as a sentiment indicator. When the VIX is low, it suggests investor complacency, while high readings indicate fear and nervousness in the market.
Turning to commodities, renewable energy stocks have experienced a notable decline in recent months, largely trailing behind fossil fuel companies, with the S&P Global Clean Energy Index, consisting of major players in the renewable sector, witnessing a 20.2 per cent decrease in value over the past two months due to the adverse impact of rising interest rates.
Lithium prices are nearing a two-year low as concerns about China's demand for lithium persist, with analysts noting that the usual fourth-quarter demand surge in China has yet to materialise due to sufficient inventory levels and cautious restocking by car and battery manufacturers in response to weaker consumer demand.
Argentina is considering imposing a new tax on lithium companies to fund infrastructure projects and proposing a quota of up to 20 per cent of output for domestic battery projects, with the possibility of discussing the quota individually with each producer. However, these proposals may be subject to change depending on the outcome of Argentina's upcoming presidential elections later this month.
And on the Australian commodity front, Mining billionaire Gina Rinehart is reportedly increasing her stake in Liontown Resources, as Euroz Hartleys acquired over 48 million shares in the company after the market closed on Tuesday, suggesting her involvement in the share acquisition.
Turning to US sectors now, all closed lower overnight except for Utilities.
Futures
The SPI futures are pointing to a 0.5 per cent fall.
Currency
One Australian dollar at 7:30 AM was buying 63.03 US cents.
Commodities
Gold has lost 0.37 per cent. Silver has fallen 0.19 per cent. Copper has lost 0.60 per cent. Oil has added 0.80 per cent.
Figures around the globe
European markets closed lower. London’s FTSE fell 0.54 per cent, Frankfurt lost 1.06 per cent, and Paris closed 1.01 per cent lower.
Turning to Asian markets, Tokyo’s Nikkei lost 1.64 per cent, Hong Kong’s Hang Seng dropped 2.69 per cent while China’s Shanghai Composite was closed.
The Australian share market closed 1.28 per cent lower at 6943.42.
Ex-dividends
KMD Brands Limited (ASX:KMD) is paying 2.3457 cents unfranked
Naos Emerg Opp (ASX:NCC) is paying 3.75 cents 50 per cent franked
Qualitas Re Income (ASX:QRI) is paying 1.1834 cents unfranked
Ridley Corporation (ASX:RIC) is paying 4.25 cents fully franked
Dividends payable
CSL Ltd (ASX:CSL)
HMC Capital Ltd (ASX:HMC)
Integral Diagnostics Ltd (ASX:IDX)
Mader Group Ltd (ASX:MAD)
QANTM Intellectual Property Ltd (ASX:QIP)
SOCO Corp Ltd (ASX:SOC)
Southern Cross Media Group Ltd (ASX:SXL)
Symbio Holdings Ltd (ASX:SYM)
Sources: Bloomberg, FactSet, IRESS, TradingView, UBS, Bourse Data, Trading Economics, CoinMarketCap.
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