Dow slumps over 300 points as Treasury yields surge and investors focus on jobs data

Stocks started the week and fourth quarter on a volatile note after the 10-year Treasury yield
BX:TMUBMUSD10Y,
the global benchmark, hit a 16-year high of 4.70%. The yield on the 10-year could be headed for its highest point since Aug. 13, 2007. The 30-year yield
BX:TMUBMUSD30Y
is poised for its highest level in 16 years too, jumping above 4.85%. 

“The hangover from strong economic data in the U.S. is still being felt, with the headache increasing about the likelihood of high interest rates setting in rattling nerves,” said Susannah Streeter, head of money and markets at Hargreaves Lansdown.

Now investors have a new shot of strong data to handle. Job openings in August rose to 9.6 million from a revised 8.9 million in July. That tops forecasts of 8.8 million openings in August.

The newest numbers “underpinned the narrative that the labor market remained solid,” said Quincy Krosby, chief global strategist at LPL Financial. Job seekers able to negotiate higher wages are a challenge for the Federal Reserve trying to address inflation with its benchmark rate, she noted.

What’s “hovering over the market is the uncertainty as to how high we can expect rates to go,” Krosby said. The other question is how high Treasury yields go, she noted. “It is the speed at which these rates have risen that have jolted the market.”

Higher implied borrowing costs, especially when rising quickly, tend to be a drag on equities, particularly since smaller or debt-laden companies may struggle to raise financing. Moreover, rising yields lower the present value of future corporate earnings, weighing on stock-market valuations.

What could be sinking in is the realization that interest rates and yields really are going to stay higher for longer.

On Tuesday, Atlanta Fed President Raphael Bostic said there was no urgent need change course soon. “I am not in a hurry to raise, but I am not in a hurry to reduce either,” Bostic said at a panel discussion. Bostic’s comments follow other recent comments from Fed officials showing a willingness to keep interest rates higher for longer.

Traders are seeing roughly 30% odds of the Fed adding another 25 basis point hike at its coming meeting, according to the CME FedWatch tool.

Read also: How Treasury market upheaval is rippling through global markets in 4 charts

More labor market data is coming this week. The September ADP private sector employment report is released Wednesday, followed on Thursday by weekly initial unemployment claims. Then, Friday sees the all-important nonfarm payrolls report for September — and investors can gauge how that fits into the next chapter for interest rates.

The stronger than expected JOLTS data Tuesday could be a “harbinger” of a stronger than expected jobs report, Krosby said. “That’s the key data release this week. The market is keenly focused on the broader labor landscape.”

Companies in focus

• McCormick & Co. Inc.’s
  MKC,
  -8.17%
   shares were off more than 8% after its third-quarter earnings. While profits met expectations, the spice and flavor market came up short in sales.
• Shares of electric-vehicle startup VinFast Auto Ltd.
  VFS,
  -4.80%
  fell 5% to $9.31 Tuesday, taking the stock well below the $22 listing price when the company made its Nasdaq debut just seven weeks ago.
• Krispy Kreme Inc.
  DNUT,
  +1.73%
  shares edged up 2.2% on Tuesday after the company said it’s exploring its strategic options for Insomnia Cookies, including a potential all-cash sale.

— Jamie Chisholm contributed.