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Rising Treasury Yields May Weigh On Wall Street

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May 29 2024 9:10AM

The major U.S. index futures are currently pointing to initial weakness on Wall Street on Wednesday, with stocks likely to move mostly lower following the mixed performance seen in the previous session.

A continued increase by treasury yields may weigh on Wall Street, as the yield on the benchmark ten-year note is seeing further upside after jumping above 4.5 percent to its highest levels in nearly a month on Tuesday.

The advance by treasury yields is likely to add to recent concerns about the outlook for interest rates ahead of key inflation data later in the week.

On Friday, the Commerce Department is due to release its report on personal income and spending in the month of April, which includes readings on inflation said to be preferred by the Federal Reserve.

The inflation data could have a significant impact on the outlook for interest rates ahead of the Fed’s next monetary policy meeting on June 11-12.

In an interview with CNBC on Tuesday, Minneapolis Fed President Neel Kashkari said he needs to see “many more months of positive inflation data” before he would consider cutting interest rates.

Kashkari, who does not have a vote on the rate-setting Federal Open Market Committee this year, also said he could not rule out raising interest rates if inflation fails to slow.

After moving in opposite directions early in the session, the Nasdaq and the Dow turned in a mixed performance throughout much of the trading day on Tuesday.

While the Nasdaq briefly joined the Dow in negative territory in afternoon trading, the tech-heavy index rebounded to end the day at a new record closing high.

The Nasdaq climbed 99.09 points or 0.6 percent to 17,019.88, adding to the strong gain posted last Friday. The S&P 500 also inched up 1.32 points or less than a tenth of a percent to 5,306.04, while the Dow slid 216.73 points or 0.6 percent to 38,852.86, extending the sharp pullback seen last week.

The continued advance by the Nasdaq came amid a sharp increase by shares of Nvidia (NASDAQ:NVDA), with the AI darling surging by 7.1 percent to a record closing high.

Last week, Nvidia reported better than expected fiscal first quarter results and provided upbeat guidance while also announcing a ten-for-one stock split and increasing its quarterly cash dividend by 150 percent to $0.10 per share.

The Nasdaq gave back ground in afternoon trading, as the ten-year treasury yield jumped above 4.5 percent after auctions of two-year and five-year notes attracted below average demand.

Meanwhile, a steep drop by shares of Merck (NYSE:MRK) weighed on the Dow, as the drug giant tumbled by 2.6 percent to its lowest closing level in well over a month.

Overall trading activity remained somewhat subdued, however, as traders looked ahead to the release of key inflation data later this week.

On the U.S. economic front, the Conference Board released a report unexpectedly showing a significant improvement in consumer confidence in the month of May.

The Conference Board said its consumer confidence index jumped to 102.0 in May from an upwardly revised 97.5 in April.

The rebound surprised economists, who had expected the consumer confidence index to decrease to 95.3 from the 97.0 originally reported for the previous month.

Airline stocks moved sharply lower over the course of the session, dragging the NYSE Arca Airline Index down by 2.0 percent to its lowest closing level in over four months.

Considerable weakness also emerged among housing stocks, as reflected by the 1.3 percent loss posted by the Philadelphia Housing Sector Index.

Healthcare and pharmaceutical stocks also saw notable weakness, while gold stocks showed a strong move to the upside along with the price of the precious metal, driving the NYSE Arca Gold Bugs Index up by 2.2 percent.

Oil service stocks also moved significantly higher amid a surge by the price of crude oil, resulting in a 1.7 percent gain by the Philadelphia Oil Service Index.

Semiconductor and computer hardware stocks also turned in strong performances on the day, contributing to the advance by the tech-heavy Nasdaq.