Wall Street fell, and oil dropped by another 2% as the bond market selloff frustrated investors’ hopes of an economic soft landing.
In the futures market at 6:30, the Dow is showing a decline of 0.3%, the S&P is down by 0.2%, and the Nasdaq is slightly lower at 0.1%. The decline in Wall Street’s main indexes came primarily due to raising concerns about the sale of movement in the bond market and the easing labor market.
As for the first subject, the bond sell-off waves have become a concern for analysts and economists. The primary goal of maintaining a higher interest rate is to ensure economic softening and, by doing so, prevent a market downturn. Yet, in an unstable market, investors turn their attention to the bond market and what caused the highest bond selloff in a year. It, in turn, started to affect the soft landing strategy. The magnitude of the bond selloff has been so stunning that stocks are arguably more expensive than a month ago,” said Barclays. “In the short term, we can think of one scenario where bonds rally materially if risky assets fall sharply in the coming weeks.”
Speaking of that, it’s best to point out that bonds that mature in 10 years have fallen by more than 49% since their 2020 peak. In terms of inflationary pressure and higher living costs, all the data indicates that the threat is facing However, reducing the inflation rate is one thing, and softlanding is another. That’s what complicates things, especially when the bond market is hot these days, which could add more fuel to the inflationary sparks.
According to Michael Craig, head of asset allocation at TD Asset Management, economists see the remaining inflation reduction as challenging, suggesting the bond market implies a potential economic recession to achieve it. In contrast, Lawrence Fuller, an Investing Group Leader, attributes bond panic-selling to Fed officials’ rhetoric about keeping short-term rates higher to combat inflation, creating concerns about prolonged rate hikes regardless of economic data.
Meanwhile, the labor market is still in a resilient condition in the U.S. According to the Labor Department’s latest report, the number of Americans filing new unemployment claims rose last week while the number of layoffs declined.
In terms of hiring, the workforce is still tight, and the Federal Reserve is carefully keeping an eye on its developments.
Michael Pearce, lead U.S. economist at Oxford Economics, said
“Fed officials will need to see further softening in the September employment report and beyond to prevent them from raising rates one more time this year.”
Meanwhile, in the commodity market, crude oil is experiencing a drop of 1.9%, with prices at $82.60 per barrel. Gold, on the other hand, is up by 0.1% and is currently valued at $1,837.10 per ounce.
Oil cartels seem not to like seeing oil prices feel this low; on average, WTI and Brent oil are traded at an average of $82 per barrel. Trading platform OANDA analyst Ed Moya says, “This oil market reversal must be frustrating for the Saudis.” He added, “Energy stocks have gone from Wall Street’s best trade to the time to abandon ship. US gasoline demand destruction is intensifying, and given how overbought the energy market was in September, momentum for oil sales has been fierce.”