Stock Market Today: Soaring Treasury Yields Pressure Stocks

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Stocks kicked off the new month and quarter on a relatively quiet note, even as Congress over the weekend passed a stopgap spending measure to avoid a shutdown and fund the government through mid-November.

While all three benchmarks spent some time in positive territory today, rising Treasury yields and a round of hawkish commentary from several Federal Reserve officials brought them off their session highs.

When the equities market closed last Friday, it seemed all but certain a government shutdown would occur over the weekend. However, late Saturday, Congress passed a 45-day spending bill that will provide funding through mid-November.

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"The news initially sent stocks higher in premarket trading before gains faded Monday morning," says Jeffrey Buchbinder, chief equity strategist at LPL Financial. "But before you get too comfortable, keep in mind in six weeks we may be right back in the same situation we were in last week."

Treasury yields keep climbing

Meanwhile, the bond market continued to struggle, with yields on the 2-year and 10-year Treasuries hitting their highest levels since 2006 and 2007, respectively. Specifically, the yield on the 2-year note rose 6.4 basis points to 5.11%, while the 10-year yield climbed 11.8 basis points to 4.689%. (A basis point = 0.01%.)

"From a fundamental perspective, rates have been driven higher by a U.S. economy that has continued to outperform expectations, pushing recession expectations out further, and by the unwinding of rate cut expectations by the Federal Reserve to be more in line with the Fed's 'higher for longer' regime," Buchbinder says.

Federal Reserve Governor Michelle Bowman said earlier today that "further rate increases will likely be needed to return inflation to 2% in a timely way." Additionally, Fed Governor Michael Barr this afternoon said interest rates will need to be held at "a sufficiently restrictive level" for "some time" in order for inflation to come down to the central bank's target.

Nvidia can rally another 35%, analyst says

As for the major indexes, the Dow Jones Industrial Average (-0.2% at 33,433), while the S&P 500 was fractionally higher at 4,288. The Nasdaq Composite, on the other hand, held on for a 0.7% gain at 13,307 thanks to upside in several mega-cap stocks.

Nvidia (NVDA), for one, jumped 3.0% – gaining $32 billion in market capitalization – after Goldman Sachs added the semiconductor stock to its conviction list given the company's competitive moat in the artificial intelligence (AI) space.

NVDA is "the principal 'shovel supplier' in the AI 'gold rush'," says Goldman Sachs analyst Toshiya Hari. However, the company is also seeing solid data center strength, with sales nearly tripling in the most recent quarter, and supply issues are abating, the analyst adds. Hari has a $605 price target on Nvidia, implying expected upside of roughly 35% to current levels.

With over a decade of experience writing about the stock market, Karee Venema is the senior investing editor at Kiplinger.com. She joined the publication in April 2021 after 10 years of working as an investing writer and columnist at a local investment research firm. In her previous role, Karee focused primarily on options trading, as well as technical, fundamental and sentiment analysis.