On the 2nd (local time), the New York stock market fell sharply as it faced the adverse factor of soaring bond rates. The stock market, which had been on a record-high rally throughout August, reversed to a sharp decline starting from the first transaction in September.
Historically, September is considered the weakest month for the stock market. According to The Wall Street Journal (WSJ), the S&P 500 index has recorded an average loss of 2% in September over the past 10 years. As all three major indices fell sharply that day, voices of concern arose among investors about whether the 'September folklore' might become a reality. The market is attentive to the August employment report, which will be released later this week.
On that day, the Dow Jones Industrial Average on the New York Stock Exchange (NYSE) closed down 249.07 points (0.55%) at 40,295.81. The large-cap focused Standard & Poor's (S&P) 500 index ended down 0.69% at 6,415.54, marking its worst day in over a month. The technology-heavy Nasdaq Composite index also closed down 0.82% at 21,279.63.
Experts analyzed that the soaring bond rates acted as a direct burden on the stock market. On that day, the yield on the U.S. 10-year government bonds soared to 4.27%, and the yield on the 30-year government bonds exceeded 4.97%, threatening the 5% mark for the first time since July. Typically, a 5% yield on 30-year government bonds is considered a burdensome level in the stock market. Ross Mayfield, an investment strategist at Baird Private Wealth Management, told CNBC, "A 5% yield on 30-year government bonds undoubtedly acts as a headwind for the stock market," adding that it will continue to be an impediment for stocks trading at significantly high valuations.
A court ruling that shakes the foundation of the Trump administration's trade policy also chilled investor sentiment. Earlier, on the 30th of last month, the U.S. Court of Appeals ruled that most tariffs imposed by President Trump were illegal. In response, President Trump stated that it was "highly partisan" and expressed his intention to appeal to the Supreme Court immediately. He noted, "If we do not win this ruling, we will probably see a reaction like never before," characterizing this lawsuit as an 'economic emergency.'
In the market, concerns about deteriorating fiscal soundness have increased amid growing uncertainties surrounding the persistence of tariff policies. This is due to the possibility that the government may have to refund billions of dollars in tariff revenues it has collected so far. CNBC reported, "Bond investors are raising bond yields due to the possibility that the U.S. may have to refund billions of dollars collected from tariffs."
On that day, Nvidia's (NVDA) stock price fell nearly 2%, leading the decline of the 'Magnificent 7 (M7).' Amazon (AMZN) also dropped more than 2.2%. Constellation Brands (STZ), a major beverage company, saw its stock price plummet 6.6% after lowering its annual performance outlook due to weakened consumer demand. Kraft Heinz (KHC), which Warren Buffett said he was "disappointed" with, also saw its stock price fall nearly 7% due to the company's partitioning decision. Meanwhile, PepsiCo (PEP) rose 1.1% after news broke that activist fund Elliott Management secured a $4 billion stake, resisting the market downturn.
The market is paying attention to how the August employment data, which will be announced on the 5th, will impact the Federal Reserve (Fed) rate cut decision. According to the Chicago Mercantile Exchange (CME) FedWatch, the market sees a greater than 90% chance of a 0.25% rate cut in September. David Kelly, the chief global strategist at J.P. Morgan Asset Management, analyzed, "This Friday's employment report could be one of the most important indicators in recent years," adding that "The sluggish short-term economy and rising inflation pressures have put the central bank in a difficult situation."