U.S. Stock Indexes Fall on Rising Yields, Middle East Conflict, and Hurricane Risks
U.S. stock markets declined on Monday as rising Treasury yields and escalating tensions in the Middle East dampened investor sentiment. In addition, the rapid intensification of Hurricane Milton introduced fresh concerns for sectors exposed to natural disasters. These factors contributed to a risk-off mood among traders, leading to broad declines across key indexes.
At 17:37 GMT, the Dow Jones Industrial Average is trading 42100.00, down 252.75 or -0.60%. The S&P 500 Index is at 5725.29, down 25.78 or -0.45% and the Nasdaq 100 Index is trading 18051.40, down 86.45 or -0.48%.
Rising Treasury Yields Weigh on Markets
The 10-year U.S. Treasury yield surged above 4% for the first time in two months as investors recalibrated expectations for the Federal Reserve’s interest rate policy. The two-year yield also briefly rose to 4%, signaling growing uncertainty over the Fed’s next move. Following stronger-than-expected non-farm payroll data on Friday, traders have scaled back bets on a 50-basis-point rate cut. The CME’s FedWatch tool now shows an 83% chance of a smaller 25-basis-point cut in November.
The rise in yields pressured rate-sensitive megacap growth stocks, with Tesla dropping 2.3%, Alphabet falling 0.7%, and Amazon declining nearly 2.5% after a Wells Fargo downgrade. “The interest rate outlook remains uncertain and will depend heavily on the strength of the economy over the next year,” said Tony Miano, investment strategy analyst at Wells Fargo Investment Institute.
Middle East Tensions and Market Volatility
Geopolitical concerns also weighed on investor sentiment as the conflict between Hezbollah and Israel escalated. Hezbollah fired rockets into Israel’s Haifa region, while Israeli forces signaled possible ground raids into southern Lebanon.
The CBOE Volatility Index (VIX), Wall Street’s fear gauge, spiked to a four-week high of 20.77, reflecting increased anxiety among traders.
Energy stocks were a notable exception, with the S&P 500 Energy Sector gaining 0.7%. Crude prices surged due to concerns over potential supply disruptions from the conflict, providing a lift to oil companies.
Hurricane Milton Boosts Power Stocks, Hits Insurers
Shares of backup power generation company Generac Holdings surged more than 7% on Monday as Hurricane Milton intensified into a Category 5 storm. The storm is expected to pass north of the Yucatan Peninsula and reach the Gulf Coast of Florida by Wednesday. Forecasters are warning that Tampa Bay could face a storm surge of up to 12 feet. Generac shares hit a 52-week high of $174.08 during intraday trading, up 8.7% from Friday’s close.
Meanwhile, insurance stocks with significant hurricane exposure saw sharp declines. Allstate, Travelers, and Chubb fell more than 3%, while Progressive and AIG slid over 1%. Universal Insurance, based in Florida, plunged 15% as it faces increased risk from Hurricane Milton. Joshua Shanker, a research analyst at Bank of America, warned that property and casualty insurers and reinsurers could see a significant hit to fourth-quarter earnings due to the storm.
Key Events Awaited: CPI Data and Earnings Season
Later this week, investors will closely monitor consumer price index (CPI) data due on Thursday and comments from several Federal Reserve officials. Additionally, third-quarter earnings season kicks off on Wednesday, with major banks set to report. Wall Street will watch these earnings reports closely, as the S&P 500 is up 20% year-to-date and stands near record highs.
Market Forecast
The market faces a turbulent short-term outlook as rising yields, geopolitical instability, and hurricane-related risks cloud the environment. Sectors like technology and insurance could remain under pressure, while energy and defensive stocks may benefit from ongoing geopolitical and weather-related uncertainties. Traders should brace for continued volatility, with downside risks persisting as markets grapple with multiple headwinds.
