U.S. stocks struggle for direction as rising Treasury yields keep pressure on market

What’s driving markets

Equity investors continued to warily eye the trajectory of bond yields Thursday, as stocks looked set to struggle for another session. Early action saw the 10-year Treasury yield BX:TMUBMUSD10Y touch a fresh 16-year high north of 4.650%.

The S&P 500 is down 5.2% so far in September as long-term borrowing costs have risen sharply in recent weeks to their highest since 2007. The index is on track to fall for four straight weeks for the first time since December.

Surging energy costs in the form of crude oil have helped propel bond yields higher recently by stoking fears of a reacceleration of inflation. Concerns about increased supply of government debt and relatively benign economic data have also helped push yields higher, which in turn has been blamed for driving the September selloff in stocks.

The WTI U.S. crude benchmark
CL.1,
-0.56%
touched $95 a barrel early Thursday , its most expensive in 13 months, as Russia and Saudi Arabia trim production and U.S. inventories decline. But prices were trading slightly lower in early U.S. trade.

On the economic data front, the number of Americans who applied for unemployment benefits rose slightly last week to 204,000, but layoffs remained extremely low and there was no sign of rising unemployment.

Other data showed, the U.S. economy grew at a healthy 2.1% annual pace in the second quarter, revised figures showed, but consumer spending turned out to be weaker than originally reported. More recent evidence, however, suggests spending rebounded in the third quarter, as did the broader economy. GDP is forecast to rise 4% or more in the third quarter running from July to September.

“The big news is not that nothing has changed, but that the economy remains resilient, inflation remains elevated and the Fed’s worst case scenario – for now – has been avoided (e.g. stagflation),” Chris Zaccarelli, chief investment officer for Independent Advisor Alliance, wrote in a Thursday note.

A batch of encouraging inflation data out of Germany didn’t improve the mood in equity markets much. Consumer prices in the eurozone’s largest economy rose 4.5% year-over-year in September, down slightly from the prior month.

“Another mixed session in Europe on Thursday with U.S. futures pointing to a similar open on Wall Street despite some promising inflation figures from the euro area,” said Craig Erlam, senior market analyst at OANDA, in emailed commentary.

More inflation data out of the U.S. and eurozone is expected on Friday, when the Fed’s preferred gauge of consumer prices, the PCE Price Index, will offer more insight into whether price pressures in the U.S. are intensifying once again

Traders are also awaiting Federal Reserve Chair Jerome Powell, who is set to make public comments at 4 p.m. Eastern Time. Fed Governor Lisa Cook is scheduled to speak before that, at 1 p.m.

Companies in focus

• Peloton Interactive’s
  PTON,
  +5.80%
  stock jumped 14% after the connected-exercise-bike maker and yoga-wear giant Lululemon Athletica
  LULU,
  +0.52%
  announced a five-year partnership.

• Micron Technology Inc. shares
  MU,
  -1.89%
  fell 5% after the memory-chip maker said another quarter of negative margins are in store and CEO forecasts “several hundreds of millions of dollars” in 2024 data center sales from AI boom.

• GameStop
  GME,
  -2.42%
  surged after the company said billionaire investor and board chairman Ryan Cohen would be named CEO.

• Costco Wholesale
  COST,
  +0.97%
  is on track to log its highest closing level since August after reporting strong quarterly earnings earlier this week.

• Accenture PLC
  ACN,
  -5.36%
  shares slumped on a weak earnings outlook.