Dow declines for eighth time in 10 sessions as bond yields rise even further

By Vivien Lou Chen and William Watts

U.S. stocks mostly edge up to start final quarter of 2023, but concerns remain about rising Treasury yields

U.S. stocks ended mostly higher on Monday as Treasury yields hit more multi-year highs and lawmakers averted a shutdown of the federal government over the weekend.

What happened

The Dow Jones Industrial Average DJIA ended down by 74.15 points, or 0.2%, at 33,433.35. It was the eighth decline in the past 10 trading sessions.The S&P 500 SPX eked out a slight, last-minute gain of less than a point to finish at 4,288.39.The Nasdaq Composite COMP finished up by 88.45 points, or 0.7%, at 13,307.77.

Stocks had closed out a losing September and third quarter on Friday. The S&P 500 fell 4.9% in September to post its worst month of 2023 and declined 3.7% for the quarter. The Dow and Nasdaq also suffered quarterly declines.

Market drivers

Stocks faced headwinds from the threat of higher interest rates, as 10- and 30-year Treasury yields climbed to their highest levels in more than a dozen years.

Monday's selloff in U.S. government debt added to the recent losses experienced by existing Treasurys holders, who are watching the prices on underlying securities tumble. The rate on the 10-year note BX:TMUBMUSD10Y jumped by 11 basis points to 4.682%, its highest closing level since Oct. 12, 2007. The 30-year rate BX:TMUBMUSD30Y rose 8.5 basis points to 4.794%, its highest since April 6, 2010.

Stopgap legislation that averted a potentially economy-damaging government shutdown provided some early support during Asian trading hours. But Treasury yields moved steadily higher as the session progressed, with investors reasoning it is now more likely the Fed will raise borrowing costs again this cycle.

Read: Why stock-market investors aren't finding comfort in averted government shutdown

Fed-funds futures traders priced in a 25.7% probability of a quarter-point rate increase on Nov. 1, up from around 18% on Friday. Fed Gov. Michelle Bowman said that multiple interest-rate hikes may be required to get inflation down. Fed Vice Chair for Supervision Michael Barr said on Monday that the central bank's focus is on how long rates should stay high.

"Federal lawmakers secured a 45-day extension of current spending levels to dodge a government shutdown. However, the agreement is hardly a long-term solution, as tensions over government budgets are unlikely to dissipate," said Jason Pride, Michael Reynolds and Ilona Vovk of the investment strategy team at Glenmede, which manages $42 billion in assets. "All else equal, each tightening of the government's purse strings should act as a headwind to the economy and profits."

Monday's session kicked off the final quarter of 2023, a seasonal period that tends to see gains for stocks, particularly as the year draws to a close.

Read: Stock-market seasonality suggests a rally in the fourth quarter. Why this year might be different.

It follows a tough September, though, when the S&P 500 endured its worst month of the year, down 4.9%, as the 10-year Treasury yield surged to its highest level since 2007 amid concerns that sticky inflationary pressures would cause the Federal Reserve to keep interest rates higher for longer.

See: 'Anxiety' high as stocks fall, yields rise -- what to know after S&P's worst month in 2023

On Monday, the Institute for Supply Management's manufacturing survey rose to 49.0% last month from 47.8% in August, but remained at a level that signals contraction. Economists polled by The Wall Street Journal had expected the index to register 48% in September. The index has been negative for 11 months in a row for the first time since the Great Recession of 2007 to 2009.

Better news came from China, where official data over the weekend showed the country's manufacturing sector expanded in September for the first time in six months. That news initially helped the mood across global markets -- though not in China itself, which was shut for the Golden Week holiday.Keith Buchanan, a senior portfolio manager at GLOBALT Investments in Atlanta, which oversees around $2.5 billion, said the weekend showdown in Washington demonstrates "just how dysfunction can seep into the plumbing of our federal government, and is an ongoing risk." "I don't think that risk is behind us, and it is becoming a recurring issue that markets are starting to compartmentalize," he said via phone on Monday.

Buchanan also said the developments in Washington haven't changed his view on the markets. "We think that higher rates is really the tail wagging the dog in markets, and is the big story that's causing the majority of the market moves we're seeing right now," he said.

Companies in focus

Class A shares of AMC Entertainment Holdings Inc. AMC ended up by 2%. Variety reported over the weekend that the makers of a concert film of Beyoncé's Renaissance World Tour are in advanced talks to distribute the film directly through AMC, following its deal to distribute the concert film "Taylor Swift: The Eras Tour" starting Oct. 13. Shares of Marcus Corp. MCS closed up by 0.7% after Marcus Theatres announced that it would show the Renaissance World Tour concert film.Shares of Tesla Inc. TSLA ended 0.6% higher even after the electric-vehicle giant reported third-quarter deliveries that were well below already-lowered expectations.Rivian Automotive Inc. RIVN said Monday that it delivered 15,564 vehicles in the third quarter, more than double the 6,584 vehicles the electric-vehicle maker delivered in the same period a year ago. Nonetheless, its Class A shares ended off by 2.6%.Nio Inc.'s American depositary receipts NIO finished down by 2.8% even though the China-based electric-vehicle maker reported a big jump in deliveries for both September and the third quarter, amid the launch of its new EC6 coupe SUV.Shares of Kellanova K, formerly known as Kellogg Co., and the new North America cereals business WK Kellogg Co. KLG were off to a soggy start, with the new stocks respectively ending down by 6% and 9.1% in their first day of trading following the completion of their separation into two independent public companies. SmileDirectClub Inc.'s Class A shares SDC plummeted 61.2% after the teeth-straightening company voluntarily filed for Chapter 11 bankruptcy protection as its founders committed to help recapitalize the company.

Jamie Chisholm contributed.

-Vivien Lou Chen -William Watts

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10-02-23 1630ET

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