Fears of Sustained High Interest Rates Drive Down Stocks and Bonds
August 19, 2023
The economic week was characterized by the decline in both stocks and bonds, triggered by optimistic economic indicators suggesting a likelihood of the Federal Reserve retaining high-interest rates for an extended period. However, the situation seemed to regain balance by Friday.
U.S. Treasury Yield’s Rising Streak
The previous Thursday saw the benchmark 10-year U.S. Treasury yield settle at an unprecedented level, last witnessed in November 2007. Even though it slipped under 4.3%, it succeeded in marking its fifth consecutive week of gains. This consistent upsurge in yields has investors “on their toes”, as previous abrupt increases have, at times, unsettled the markets.
The Discrepancy in Short-term and Long-term Rates
Analysts observe a considerable gap between the 10-year yield, which is relatively low, and short-term rates regulated by the Fed. This implies the possibility for the benchmark rate to ascend further, according to some market observers.
A Recap of Major Stock Indices
The major stock market indices recorded a downslide over the week. The S&P 500 plummeted 2.1% to an almost eight-week low, while the Dow Jones dropped 2.2%, marking its largest weekly loss since March. Meanwhile, the Nasdaq Composite dipped 2.6% to its lowest in 10 weeks.