Dow Jones turns negative for the year as interest rates spike, posts worst day since March

Benchmark indices fell overnight on Wall Street as Treasury yields hit the highest level since 2007, raising concern higher interest rates would freeze the housing market and tip the economy into a recession.

The Dow Jones fell over 400 points for its worst day since March this year. The 30-stock index also turned negative for 2023. On the other hand, the S&P 500 fell 1.4 percent, touching a three-month low in intraday trading, while the tech-heavy Nasdaq fell nearly 2 percent as growth stocks saw some of the biggest losses due to higher rates.

For 2023, the S&P 500 is still up 10 percent, while the Nasdaq is up 25 percent despite the drop. The Cboe Volatility Index, better known as the VIX, popped above the psychologically important 20 level for the first time in four months.

The 10-year Treasury yield touched 4.8 percent, reaching its highest level in 16 years. The benchmark yield has surged in the past month as the Federal Reserve pledged to keep interest rates at a higher level for longer. The 30-year Treasury yield hit 4.925 percent, also the highest since 2007. The average rate on a 30-year fixed mortgage neared 8 percent.

A surprising increase in US job openings, something Jerome Powell has been watching as the Federal Reserve tries to tame stubbornly high inflation, further added to the pain. His lieutenants have been hammering the theme that interest rates will need to stay high for a long period — Cleveland Fed President Loretta Mester and Atlanta Fed chief Raphael Bostic reiterated it over in the past two days — sending long-term Treasury yields to 16-year highs.

“It doesn’t seem like stock investors want to get in front of the daily spike in rates,” said Dan Eye, chief investment officer at Fort Pitt Capital Group. “The interest-rate environment needs to calm down before investors can focus on earnings season being a potential catalyst for stocks to move either higher or lower.”

Seasonal weakness is “pretty normal” for the market in September and October, according to Chris Zaccarelli, chief investment officer at Independent Advisor Alliance. However, he noted that ongoing concerns about higher interest rates could mean more downside is ahead for stocks.

The rout on Tuesday was the seventh loss of at least 1 percent since August, after just three in the second quarter. The stock market’s put-to-call ratio — a gauge of tracking the volume of bearish versus bullish options — has stayed above 1 for seven out of nine days.

Other signs of stress are mounting. The S&P 500 is less than 30 points above its average price over the past 200 days, and breaching that level could set off sharp declines. The index has been over it for 137 sessions, the longest run since the post-pandemic surge that started in June 2020.