Dow, S&P 500 book best day in two weeks despite focus on Treasury market volatility

What drove markets

The S&P 500 index and Nasdaq booked back-to-back gains Thursday despite a 7-year auction of Treasury notes that produced the highest yield in that series since 2009, the year the first such notes were reintroduced by the government.

“We were up higher earlier in the day, but results from a Treasury auction put a little cold water on the rally,” said Robert Pavlik, senior portfolio manager at Dakota Wealth Management.

Pavlik also said a bounce in technology shares provided some support for stocks overall, and that investors remained wary of the recent rally. “I think it’s natural for people to test it out and see if it’s going to hold.”

A 7-year auction of Treasury notes on Thursday was awarded at 4.673%, that was a record for the series since 2009, said Kent Engelke, chief economic strategist at Capitol Securities Management, in an email to MarketWatch.

He said that with borrowing costs climbing to around a 15-year high fears may be increasing about the U.S. fiscal deficit and the possibility that rising interest expenses could damage the economy.

Still, an upward march in Treasury yields showed signs of slowing on Thursday. The 10-year Treasury yield BX:TMUBMUSD10Y touched a fresh 16-year high north of 4.650% earlier in the session, but was off 2.9 basis points at 4.596% in as of 3 p.m. Eastern.

After U.S. WTI crude oil futures touched $95 a barrel early Thursday, the most expensive in 13 months, prices have been pulling back, helping to alleviate some of the market’s concerns about higher inflation.

“We need to see Treasury yields calm down, they don’t need to fall back, they just need to stop rising in parabolic fashion,” said Art Hogan, chief market strategist at B. Riley Financial.

The 10-year yield has gained about 50 basis points this month, putting it on track for the biggest monthly and quarterly jump since September 2022, FactSet data show.

The S&P 500 is down 4.6% so far this month. The index is on track to fall for four straight weeks for the first time since December.

See: The S&P 500 is brushing up against ‘the mother of all trend lines.’ What happens next could make or break the market.

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. GDP is forecast to rise 4% or more in the third quarter running from July to September.

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.

Companies in focus

• Peloton Interactive’s
  PTON,
  +5.38%
  stock jumped 5.5% after the connected-exercise-bike maker and yoga-wear giant Lululemon Athletica
  LULU,
  -0.04%
  announced a five-year partnership.

• Micron Technology Inc. shares
  MU,
  -4.41%
  fell 4.1% 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,
  -1.81%
  fell 1.5% after the company said billionaire investor and board chairman Ryan Cohen would be named CEO.

• Accenture PLC
  ACN,
  -4.33%
  shares fell 4.2% on a weak earnings outlook.

—Additional reporting by Jamie Chisholm in London