The Dow Jones (DJIA) is down 0.54% on Monday as the uptrend in long-dated yields continues. The 10-year yield is up 2.6 basis points (bps) to 5.3%, while the 30-year is up 2.3 bps to 5.65%. With higher yields, the opportunity cost of holding stocks increases.
Rising oil prices caused by supply chain disruptions in the Middle East have supported yields in recent months. However, traffic through the global oil chokepoint secured a major comeback in September, with an average of 16.5 million barrels per day (bpd) of crude leaving the region. That’s up from 11.4 million bpd in July and only slightly below the 17.3 million barrels per day in February before the onset of the U.S.-Iran war.
Crude Slips on Improved Middle East Shipping Flows
This morning, Yemeni government forces, backed by Saudi Arabia, said they had secured control of the Bab el-Mandeb Strait. The strait had been subject to attacks by the Iran-backed Houthis in recent weeks. Brent crude (BZ), the global oil benchmark, is down 0.77% to $101 per barrel on the prospect of greater flows.
Despite rising yields, not all of Wall Street is sold on the idea that the rally will stall. “Many investors expect higher yields to derail the equity rally, but I think the market still has enough momentum to push through further increases in interest rates,” said Andersen Capital Management founder Peter Andersen.
Andersen’s statement comes amid falling rate hike odds. The odds of a 25-bp hike at the October 28 Fed meeting currently sit at 21.6% on the CME FedWatch tool. That’s down from 22.1% on Friday and 70.9% a week ago. Hike odds have declined over the past week following a weaker-than-expected jobs report and dovish comments from two top Fed officials.
Elsewhere, most Dow Jones sectors are showing mixed or negative performance on the day. Tech giants Microsoft (MSFT) and Nvidia (NVDA) are both trading higher, while Caterpillar (CAT) and Merck (MRK) are dragging the index down. Chevron (CVX), the lone energy stock in the Dow Jones, is down by over 2% alongside falling oil prices. In contrast, both the S&P 500 (SPX) and the Nasdaq 100 (NDX) are in the green.