Investors can breathe a sigh of relief now that September — historically the worst month of the year for stocks — is in the rear-view mirror. This past September certainly lived up to its reputation, with the S & P 500 and the Nasdaq suffering their biggest monthly losses in 2023. However, changing the calendar may not be enough to erase three material hurdles standing in the way of stocks returning to their winning ways. We’re talking about this year’s rise in bond yields, oil prices and the dollar — all at the time same. The 10-year Treasury yield on Monday hit its highest level since October 2007, breaking slightly above 4.7%, in a continuation of its march higher since April. In the third quarter alone, the 10-year yield climbed from roughly 3.8% to Friday’s settle of nearly 4.58%. In the three months that ended Friday, both the U.S. oil benchmark and the international crude standard posted their largest quarterly price increases since the first quarter of 2022, when Russia’s invasion of Ukraine roiled energy markets and sent the commodity soaring. The U.S. dollar index — which measures the greenback against six other currencies including the euro and Japanese yen – is riding an 11-week win streak, en route Monday to fresh highs for the year. To be sure, other factors such as a potential U.S. government shutdown — which has been temporarily avoided — and the multiweek United Auto Workers strike against General Motors (GM), Jeep parent Stellantis (STLA) and Club holding Ford Motor (F) have also injected uncertainty into the marketplace. Nevertheless, bond yields, oil prices and the dollar always have far-reaching implications for the stock market. Here’s a closer look at how they’re currently impacting things. US10Y YTD mountain 10-yield Treasury yield YTD It all starts with the bond market. “The higher yields, that’s what’s been pressuring the equity market,” Wharton School professor Jeremy Siegel said Monday on CNBC. Indeed, U.S. government bond prices sold off in September. The resulting jump in yields — which move inversely to bond prices — accelerated after the Federal Reserve on Sept. 20 indicated interest rates may stay “higher for longer,” as the central bank seeks to bring inflation down further, and the market finally listened. Of course, there are those of us who are worried that the full impact of the 11 rate hikes already made by the Fed since March 2022 has not fully been realized in the economy. Therefore, we think a higher-for-longer policy may be misguided. In September, the S & P 500 dropped 4.9% while the tech-heavy Nasdaq slumped 5.8%. The Dow Jones Industrial Average proved to be the relative outperformer, falling only 3.5% in the month. Still, the Dow’s decline was its worst monthly decline since February. Bonds impact stocks in multiple ways, including competing over investment dollars. Higher yields on U.S. government notes — which are the closest possible thing to a risk-free investment — can…
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