S&P 500 Mixed as 10-Year Treasury Note Yield Hits Highest Level Since Nov. 10

The S&P 500 Index is lower in a choppy trade on Tuesday as Treasury yields rose on bets of more interest rate hikes from the Federal Reserve. The other major averages – Dow Jones Industrial Average and NASDAQ Composite are also posting similar moves as the U.S. stock market closes out a dismal month.

At 15:30 GMT, the benchmark S&P 500 Index is trading 3977.50, down 4.74 or -0.50%. The blue chip Dow Jones Industrial Average is at 32723.74, down 165.35 or -0.12% and the tech-heavy NASDAQ Composite is trading 11466.66, down 0.32 or +0.00%.

Investors Bracing for Big Rate Hike

Today’s early mixed trade comes as investors have started to price in the possibility of a bigger 50 basis-point rate hike in March, although the odds remain low at about 23%, according to Fed fund futures which also suggest rates peaking at 5.41% by September, up from 4.57% now.

Additionally, Bank of America Global Research warned the Fed could even hike interest rates to nearly 6%.

Treasury Yields Rise Slightly

U.S. Treasury yields rose slightly on Tuesday to close out a bumper month for government bond yields. Higher yields tend to pull money from the stock market so if yields continue to rise throughout the session, equities are going to have a hard time building any upside momentum.

Stocks extended their losses as bond yields moved higher after the release of a consumer confidence report at 15:00 GMT.

The yield on the 10-year U.S. Treasury note hit a high of 3.983% its highest level since Nov. 10, when the note yielded as high as 4.117%. It was last higher by about 3 basis points at 3.955.

Worries about the Economy Grew in February, Conference Board Says

Consumers grew more pessimistic in February as worries over the longer-term outlook for the economy diminished, according to a Conference Board report Tuesday.

The board’s Consumer Confidence Index fell to 102.9 for the month, down from 106 in January and below the 108.50 estimate from Dow Jones.

Sector and Stock Watch

Five of the 11 major S&P 500 sectors are lower on Tuesday with defensive utilities and consumer staples leading losses.

The tech-weighted NASDAQ Composite is trading a little better than the other two indexes. It is being supported by Meta Platforms and Applied Materials.

Shares of Target are up 1.9% after the big-box retailer reported a surprise rise in holiday-quarter sales but cautioned on 2023 earnings due to an uncertain U.S. economy.

Zoom Video Communications climbed 2.1% after it forecast annual profit above Wall Street estimates and said it will integrate more artificial intelligence into its products.

Chevron Corp slipped 0.1% even after the oil giant raised its annual share buyback outlook to between $10 billion and $20 billion.

Short-Term Outlook

With the month winding down, it looks as if traders will take their cues from the Treasury market on Tuesday.

When the month started, investors were pricing in a 4.91% Fed terminal rate, a pause in rate hikes at the end of March and possibly two rate cuts later in the year.

Conditions changed however with the labor market tightening and inflation still inching higher on strong retail sales. Now investors are pricing in at least three 25 basis point rate hikes in March, May and June and a terminal rate of about 5.40% in September. It’s this new assessment that is weighing on stock prices.