Panic struck across the U.S. stock market On January 18 as the major indexes fell sharply after 10-year Treasury yields reached 2-year highs, resulting in investors preparing for a possibly higher-than-expected interest rate hike by the Federal Reserve. The decline came right after the stock market holiday on Monday, as the country observed Martin Luther King Jr. day.
Additionally, the 2-year treasury yield outpaced the 1% mark for the first time since February 2020, a month before the onslaught of the pandemic-led recession. Importantly, the 2-year Treasury is seen as a measure to estimate the extent to which the Federal Reserve will set the interest rates. That explains why the increase in yield sent investors scurrying to take their money out of equities.
The Dow Jones (DJIA) index shed 543.34 points, declining 1.5%. This decline was led by a 7% decline in the Goldman Sachs stock (NYSE: GS) after it posted dismal fourth-quarter earnings. Additionally, the S&P 500 (SPX) dropped 1.8%.
Typically, technology companies borrow for technological innovations and thus thrive better in a low-interest-rate environment. Therefore, being the most sensitive to interest rates, the technology stocks were hit the hardest. This invariably led to a 2.6% decline in each of the tech-heavy Nasdaq Composite and Nasdaq 100 (NDX) indexes, leading them to hit their 3-month lows.
However, U.S. stock futures pointed towards slight stabilization in overnight trading on Tuesday, with Dow futures recovering 10 points of the 540 points lost yesterday. S&P 500 futures gained 0.05% (5 points) and Nasdaq 100 futures were unchanged.
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