Surging Treasury Yields and Fed's Hawkish Revisions Rock Wall Street -

Surging Treasury Yields and Fed’s Hawkish Revisions Rock Wall Street

September 23, 2023

On Friday, stocks experienced their fourth consecutive daily decline, culminating a tumultuous week accentuated by 16-year peak U.S. Treasury yields and investors wrestling with assertive adjustments from the Federal Reserve. The Central Bank remained the focus throughout the week, with its monetary policy committee electing to uphold steady rates on Wednesday, in accordance with widespread expectations.

Fed’s Decision and Its Repercussions

Nonetheless, the recent dot plot – a compiled report of economic and rate estimates – implied the prospect of another rate increase this year, alongside fewer rate reductions in 2024. Moreover, Fed Chairman Powell, during the post-decision briefing, declared that a “soft landing” was not the default expectation, an assertion that additionally destabilized investor confidence. He further emphasized that “economic activity had outperformed all projections.”

Interest Rates and Treasury Note Yields

Over the week, the yield on the 10-year Treasury note surged by 12 basis points to 4.44%, retreating slightly on Friday following a rise on Thursday to its highest point since October 2007. This is credited to the Fed’s projection that interest rates would linger at an elevated level for an extended period. As a result, the S&P nosedived 2.9% for the week, recording its sharpest fall since mid-March, a downturn provoked by the downfall of Silicon Valley Bank. Similarly, the Dow Jones average reduced by 1.9% and the Nasdaq Composite ended 3.6% lower.

IPO Market Highlights

The IPO market witnessed some activity with the grocery delivery company, Instacart (CART), concluding 12.3% higher on its Tuesday market debut, attaining a valuation of roughly $11.5 billion. Instacart’s surge came closely after Arm’s (ARM) IPO, which observed its shares jump 25% on its first trading day. The initial fervor has since dampened, with Arm reporting falls in five consecutive sessions. The Asian Investor from Seeking Alpha expresses apprehensions that traders may be overestimating Arm’s revenue potential, a concern echoed by Wall Street analysts. Besides Arm’s and Instacart’s IPOs, Klaviyo (KVYO), a marketing automation firm, priced its IPO at the zenith of its marketed range, concluding its inaugural session up by more than 9%.

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