Stocks Weaken as Investors Continue to Adjust to Rapidly Rising Treasury Yields

The major U.S. stock index futures settled lower in a volatile trading session as investors continued to react to rapidly increasing U.S. Treasury yields. The catalyst behind Friday’s surge in yields was mixed employment data. The Cboe Volatility Index (VIX), widely considered the best fear gauge in the market, hit a high of 17.36, its highest level since July 2.

In the cash market, the benchmark S&P 500 Index settled at 2885.57, down 16.04 or -0.55%. The blue chip Dow Jones Industrial Average finished at 26447.05, down 180.43 or -0.68% and the tech-driven NASDAQ-100 Index closed at 7789.55, down 89.96 or -1.14%.

A weak technology sector was a big drag on the S&P 500 Index. The index also posted its worst weekly performance since the week of September 7.

The Dow Jones Industrial Average posted its second straight weekly decline led by steep losses in Intel and Caterpillar.

The NASDAQ Composite was driven lower by weakness in Amazon, Apple, Netflix and Alphabet. For the week, the tech-laden index fell 3.2 percent, its biggest drop since the week of March 23.

U.S. Treasury Markets

U.S. Treasury yields strengthened again on Friday and finished the week sharply higher. The rapid rise in rates was fueled by a mixed government jobs report which showed another month of rising wages and a sharp revision to August’s nonfarm payrolls.

The report also reaffirmed the current view that the labor market is near or beyond full employment and shows wages are starting to accelerate higher, which would raise issues about the Federal Reserve’s ability to prevent the economy and inflation from overheating.

The benchmark 10-year Treasury yield finished higher at 3.233 percent, just off its highest levels since May 2011, which was hit earlier in the session. The 10-year rate is up about 15 basis points on the week and about 20 basis points over the last month. The yield on the 30-year Treasury bond was up at 3.401 percent, its highest level since 2014.

U.S. Economic News

The Labor Department reported the economy added 134K jobs in September versus the 185K estimate while revising August’s nonfarm payroll number up dramatically, to 270,000 form 201,000.

The unemployment rate dropped to 3.7 percent, a level not seen in nearly 50 years, the government said, even as job creation for September fell to its lowest level in a year. Average Hourly Earnings rose 8 cents, or 0.3 percent, over the month, matching August’s gain. The year-over-year increase in wages now stands at 2.8 percent.

In other news, the Bureau of Labor Statistics and the U.S. Census said the U.S. Trade Balance deficit increased $3.2 billion in August to $53.2 billion, a 6.4 percent increase and part of an ongoing trend in 2018.

For the calendar year, the trade deficit is up $31 billon or 8.6 percent from a year ago. Traders said a $1 billion plunge in soybean exports contributed to the deficit. This was fueled by the continuing trade dispute by the United States and China. The U.S. has a $261.1 billion deficit with China year to date, $38.6 billion of which came in August.