Stocks fell Thursday as Treasury yields popped to multiyear highs and investors grew worried that lawmakers would be unable to prevent a shutdown.
The Dow Jones Industrial Average dropped 370.46 points, or 1.08%, to close at 34,070.42. The S&P 500 slid 1.64% to 4,330. The Nasdaq Composite retreated 1.82% to 13,223.98.
It was the third straight day of losses for the three indexes and the worst session since March for the S&P 500. The Dow and S&P 500 were on track to end the week down more than 1% and 2%, respectively, while the Nasdaq was poised to fall more than 3%.
The U.S. 10-year Treasury yield hit a high of 4.494%. Earlier in the day, the rate reached its highest level since 2007, with the latest catalyst being weekly jobless claims data showing a still strong labor market that could encourage the Fed to stay in hiking mode. Weekly jobless claims decreased by 20,000 to 201,000 for the week ending Sept. 16, much lower than the 225,000 claims expected by economists polled by Dow Jones. It was the lowest volume of new unemployment claims since January.
The 2-year yield touched a high of 5.202%, reaching levels seen not since 2006 in the session.
“That’s kind of a warning sign for markets right now,” said Adam Turnquist, chief technical strategist at LPL Financial, of recent yield moves. He added that yields are “certainly weighing on risk appetite at this point.”
Losses intensified following news that House Republican leaders sent the chamber into recess on Thursday, bolstering fears that federal lawmakers won’t pass a bill to avert a government shutdown. Market participants are concerned that a shutdown would hurt fourth-quarter GDP.
The moves come a day after the Federal Reserve announced it would leave interest rates unchanged, but forecasted another rate hike before the end of the year. The central bank also indicated fewer rate cuts next year, essentially saying it would need to keep rates higher for longer because stubborn inflation.
Fed Chair Jerome Powell commented after the decision that a soft landing for the economy was still possible, but not his baseline scenario.
“We’re seeing a bit of a clash between, I think, what expectations are and how things are actually going,” said Shelby McFaddin, investment analyst at Motley Fool Wealth Management. “When you’re an investor … it doesn’t seem ideal because it seems to indicate a prolonged higher interest rate environment.”
Tech shares have led the losses this week as investors rethink buying growth-oriented stocks if interest rates remain high. Tesla, Alphabet and Nvidia all lost more than 2%.
FedEx bucked the negative trend, gaining 4.5% a day after the delivery company posted adjusted earnings of $4.55 per share in its fiscal first quarter, while analysts called for $3.73 per share, per LSEG.
