Stocks rally as Treasury yields climb past 4%

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Stocks rally as Treasury yields climb past 4%

U.S. stocks were sharply higher Wednesday after the 10 year Treasury yield climbed a key economic linchpin briefly past 4% amid the worst bond sell-off in decades.

The S&P 500 and Dow Jones Industrial Average rallied more than 1% after struggling for direction for much of the morning, while the Nasdaq Composite gained about 0.8%.

The Bank of England said that it would carry out temporary purchases of long-dated U.K. government bonds, an emergency intervention to help stabilize its currency.

BoE officials said that if the market is dysfunctional, there would be a significant risk to U.K. financial stability. This would lead to a tightening of financing conditions and a reduction of the flow of credit to the real economy. As central bank and recessionary worries kept investors on edge, it was a matter of sizable moves across fixed income and currency markets. The benchmark 10 year Treasury note temporarily climbed 4%, the highest level since 2008, before falling to around 3.8% on the bond side.

In a morning note, Nicholas Colas, Nicholas Colas, Nicholas Colas said that the long-dated U.S. Treasury price volatility is hitting unusual levels right now, just as it did in June 2022. Once yields stabilized, equities in the U.S. bottomed. At the beginning of trading, Apple AAPL shares fell more than 3% after it was reported that the tech giant is backing off plans to increase production of its new iPhones this year, as demand for the product didn't meet expectations.

Analysts at Morgan Stanley expressed skepticism over the news, calling reports more bark than bite, and noting that the upside from better than expected iPhone 14 Pro Pro Max demand is likely to be offset by weaker initial iPhone 14 14 Plus demand, despite the fact that there is no downside to its iPhone shipment forecasts. Shares of DocuSign DOCU bounced 3.5% at the open after the company said it expects to restructure and reduce its workforce by approximately 9%.

Biogen BIIB stock went up about 40% on Wednesday after a successful trial of its experimental Alzheimer's drug. The news that the test slowed the progress of Alzheimer's by 27% compared to a placebo in a clinical experiment also buoyed shares of pharma peers like Eli Lilly LLY, which rose more than 7%.

Wall Street giants have turned more bearish on stocks, flagging the risk of a global recession as central banks take the most aggressive monetary action in decades.

Strategists at BlackRock's BLK Investment Institute said policymakers were downplaying the extent of economic pain needed to reduce inflation.

A team led by Jean Boivin said earlier this week that markets haven't priced that, so we shun most stocks.

Goldman Sachs GS Wall Street's premier investment bank slashed its global allocation to underweight over the next three months, citing rising real yields as a headwind.