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September 01, 2020 1:20pm
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Dow now negative for year as rising yields hit stocks

As bond yields climb to 16-year highs, investors are trading stocks for low- to no-risk options, creating headwinds for the Dow, S&P 500 and Nasdaq Composite.

U.S. stocks saw broad and steep selling on Tuesday as bond yields continued climbing, with the 10-year Treasury at the highest level in 16 years, nearing 4.7%.

"That’s why we are seeing the selloff. How high do rates go?" Mark Murphy, Rosecliff founder and managing partner, said during an interview on FOX Business’ "Varney & Co." 

The Dow Jones Industrial Average fell more than 500 points before recovering some of those losses, or 1.3%, turning negative for the year. 

JOB OPENINGS UNEXPECTEDLY JUMP

The S&P 500 lost 1.4% and the Nasdaq Composite fell 1.9% Tuesday. 

SAM BANKMAN-FRIED CRYPTO TRIAL UNDERWAY

A stronger-than-expected JOLTS report raised fears that the Federal Reserve will continue raising interest rates. There were 9.76 million opening roles in August, well above the 8.8 million economists expected, and an increase from the 8.92 million in July, as reported by the Labor Department.

Exchange traded funds that track bond prices, which trade inversely to yields, have fallen to multi-year lows for the iShares 20+ year Bond ETF and iShares TIPS Bond ETF, the lowest since August 2007 and April 2010, respectively. 

For investors, according to Teddy Weisberg of Seaport Securities, hitting the sidelines is the best course of action. 

"We've seen this interest rate momentum coming for months and all of a sudden it's come home to roost" he said. "Investors have simply awakened to the environment we are in and all of a sudden 5.5% risk-free in Treasuries or even the money market funds… doing nothing now means you can earn a pretty good return on your money compared to where we were the last 10-12 years in a zero interest rate environment" Weisberg added.

MONEY MARKET FUNDS DRAW RECORD INFLOWS WITH RATES NORTH OF 5%

Still, 72% of market participants are forecasting that the Fed will leave rates unchanged at the November meeting, as tracked by the CME’s Fed Watch Tool

Friday’s monthly employment report for September could serve as another market driver. Employers are expected to have added 170,000 positions last month, slightly below the 187,000 from the prior month. The unemployment rate is expected to tick up to 3.8% from 3.7%.

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Despite the fourth quarter's early downside volatility, the team at Goldman Sachs led by David Kostin still sees the S&P 500, the broadest measure of stocks, rising to 4,500, or about 6%, by year-end, driven by earnings growth, according to a research note published Monday. 

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