US markets slip as Treasury yields rise

NEW YORK – Wall Street slipped Tuesday in a lackluster return to trading following a three-day holiday weekend.

The S&P 500 fell 17.85 points, or 0.4%, to 4,765.98. The Dow Jones Industrial Average dropped 231.86, or 0.6%, to 37,361.12, and the Nasdaq composite sank 28.41, or 0.2%, to 14,944.35. The Russell 2000 index of smaller companies fell 23.66 points, or 1.2%, to 1,927.30.

Stocks of banks were mixed, meanwhile, as earnings reporting season ramps up for the final three months of 2023. Morgan Stanley sank 4.2% after it said a legal matter and a special assessment knocked $535 million off its pretax earnings, while Goldman Sachs edged 0.7% higher after reporting results that topped Wall Street’s forecasts.

Companies across the S&P 500 are likely to report meager growth in profits for the fourth quarter from a year earlier, if any, if analysts’ forecasts are accurate. Earnings have been under pressure for more than a year because of rising costs amid high inflation.

But optimism is higher for 2024, where analysts are forecasting a strong 11.8% growth in earnings per share for S&P 500 companies, according to FactSet. That, plus expectations for several cuts to interest rates by the Federal Reserve this year, have helped the S&P 500 rally to 10 winning weeks in the last 11.

Treasury yields have already sunk in the bond market on expectations for upcoming cuts to rates, which traders believe could begin as early as March.

Easier rates and yields relax the pressure on the economy and financial system, while also boosting prices for investments. And for the past six months, interest rates have been the main force moving the stock market, according to Michael Wilson, strategist at Morgan Stanley.

He sees that dynamic continuing in the near term, with the “bond market still in charge.”

Yields rose in the bond market after Christopher Waller, a member of the Fed Board of Governors, said in a speech that “policy is set properly” on interest rates. Following the speech, traders pushed some bets for the Fed’s first cut to rates to happen in May instead of March.

Waller did say cooling data reports have “made me more confident than I have been since 2021 that inflation is on a path” down to the Fed’s 2% target and that the central bank should cut rates this year “as long as inflation doesn’t rebound and stay elevated.”

Until then, though, Waller said the economy is doing well, which gives the Fed the ability to wait and monitor incoming data before making its next move.

The yield on the 10-year Treasury climbed to 4.06% from 3.95% late Friday. Higher yields can drag on corporate profits, among other negatives for investors, though the 10-year yield is still well below the 5% level it reached in October.

Gold for February delivery fell $21.40 to $2,030.20 per ounce. Silver for March delivery fell 24 cents to $23.09 per ounce. March copper rose 3 cents to $3.77 per pound.

The dollar rose to 147.25 Japanese yen from 145.80 yen. The euro fell to $1.0874 from $1.0951.