Treasury Yields Rise Following the Fed’s September Rate Cut
Photo Credit: Donnie Rosie, Unsplash
Monthly Market Summary
The S&P 500 Index returned -0.9%, outperforming the Russell 2000 Index’s -1.4% return. Three of the eleven S&P 500 sectors traded higher, with Financials and Communication Services gaining more than +1.5%. The remaining eight sectors traded lower by more than -1% during the month.
Corporate investment-grade bonds produced a -3.2% total return as Treasury yields rose, underperforming corporate high-yield’s -1.0% total return.
International stocks traded lower. The MSCI EAFE developed market stock index returned -5.3%, while the MSCI Emerging Market Index returned -3.1%.
Stocks End Five Month Winning Streak with First Loss Since April
Stocks finished October lower as investors navigated Q3 earnings, the upcoming election, and uncertain Federal Reserve policy. The S&P 500 posted its first monthly loss since April, lowering its year-to-date return to +20.7%. Large-cap stocks slightly outperformed small-cap stocks, but most investment factors produced similar returns. In the bond market, Treasury yields climbed as investors considered the possibility that the Fed may not cut interest rates as much as previously expected. Concerns about fiscal spending also drove Treasury yields higher, with expectations for continued high government spending regardless of the election outcome. With yields rising sharply, bonds traded lower for the first time in six months.
Treasury Yields Spike After the Fed’s September Rate Cut
What is behind this year’s bond market swings?
Volatile economic trends and uncertain Fed policy. Two key data points have increased volatility: inflation surged early in the year before easing over the summer. At the same time, unemployment rose from 3.7% in January to 4.3% in July, then fell to 4.1% in September. The Fed aims for stable prices and full employment, but conflicting data has complicated its interest rate decisions. There’s general agreement that the Fed should continue to lower interest rates, but there’s debate about how quickly and how much. The recent increase in Treasury yields reflects expectations for fewer interest rate cuts. As we have seen this year, that outlook could change in the coming months.
US Sector Returns (October in %)
US Sector Returns (Year to Date in %)
Important Disclosures
This material is provided for general and educational purposes only and is not investment advice. Your investments should correspond to your financial needs, goals, and risk tolerance. Please consult an investment professional before making any investment or financial decisions or purchasing any financial, securities, or investment-related service or product, including any investment product or service described in these materials.
Our Insights
