Why is the stock market down? Dow drops as Treasury yields near highest level since 2007

NEW YORK (AP) — Wall Street fell sharply on Tuesday as it focused on the downside of a surprisingly strong job market.

The S&P 500 dropped 1.4% to its lowest point in four months. The Dow Jones Industrial Average tumbled 430 points, or 1.3%, and wiped out the last of its gains made for the year so far. Some of the heaviest losses came from Big Tech stocks, which sent the Nasdaq composite to a market-leading loss of 1.9%.

Stocks fell as the pressure on them cranked even higher from rising Treasury yields in the bond market. Such weight has been the main reason the stock market has lost more than 40% of its value since the end of July, after charging higher for much of the year.

The 10-year Treasury yield climbed again Tuesday, up to 4.79% from 4.69% late Monday and from just 0.50% early in the pandemic. It touched its highest level since 2007 and rose after a report showed U.S. employers have many more job openings than expected.

Why is the stock market down today?

When bonds are paying so much more in interest, they pull investment dollars away from stocks and other investments prone to bigger swings in price than bonds. High yields also make borrowing more expensive for companies and households across the economy, which can hurt corporate profits.

What makes bond yields go up?

Yields have been on the march because investors are increasingly taking the Federal Reserve at its word that it will keep its main interest rate high for a long time in order to drive down inflation. The Fed has already yanked its federal funds rate to the highest level since 2001, and it indicated last month it may keep the rate higher in 2024 than it earlier expected.

Fed Gov. Michelle Bowman said in a speech Monday that she expects it will likely be appropriate “to raise rates further and hold them at a restrictive level for some time.” Restrictive is what Fed officials call high-enough rates to slow the overall economy.

Tuesday’s report on the U.S. job market could give the Fed more reason to keep rates high. It showed employers were advertising 9.6 million job openings at the end of August, much higher than the 8.9 million that economists expected.