Treasury Yields Resume Climb As US Shares Further Drop

US stocks fell as the selloff in Treasuries resumed, with traders bracing for the possibility of more aggressive policy tightening by the Federal Reserve. Meanwhile, the US dollar is gaining momentum.

Treasury yields rose across the curve, with the policy-sensitive two-year rate climbing as much as 15 basis points 2.73% as traders priced in 50 basis-point rate hikes at each of the next three meetings. The dollar gained against all of its major peers following the surge in yields.

The S&P 500 dropped 0.9%, as an about-face in risk sentiment reversed gains of as much as 1.2% in early trading Thursday fueled by upbeat earnings. The tech-heavy Nasdaq 100 fell more than 1%, underperforming major benchmarks, as the jump in yields weighed on growth-related stocks. Earlier during the North America trading session, the S&P 500 and Dow Jones Industrial Average were up about 0.9% and 0.7%, respectively.

Fed Chair Jerome Powell said he saw merit in the argument for front-loading interest-rate increases and that a half-point hike “will be on the table for the May meeting.” Powell declined to comment on market pricing but noted minutes of the March meeting showed that many officials backed one or more half-point hikes.

As for corporate earnings, Tesla Inc. gained after posting record profits that blew past estimates and with Elon Musk predicting output will grow at a fast clip for the rest of the year.

Airlines rallied as American Airlines Group Inc. said corporate and international flying was coming back and projected a second-quarter profit. United Airlines Holdings Inc. surged 11% after forecasting a profit this year.

While inflation and central-bank reactions to the spike in rising prices are big drivers of markets right now, earnings have been important this week too, especially after Netflix Inc.’s selloff, Chris Gaffney, president of world markets at TIAA Bank, noted.

On the flip-side, Tesla this morning is rallying back up on their profits. American Airlines released Q1 results, even with higher fuel prices, the company’s been able to raise their ticket prices. So far, it looks like consumers are shrugging off the price increases, but everybody is complaining about it. We’ll see how long that lasts.”

While it’s early in the US earnings-reporting season, the signs are encouraging so far. Of the 87 S&P 500 companies that have posted results, about 80% have beaten estimates, according to Bloomberg data.

US jobless claims eased last week to a level that’s consistent with an exceptionally tight labor market, Labor Department data showed Thursday. Initial unemployment claims decreased by 2,000 to 184,000 in the week ended April 16, while continuing claims for state benefits dropped to 1.42 million in the week ended April 9, the lowest since 1970.

It is hard for me to imagine a recession with consumers in as good a shape as they currently are, Brent Schutte, chief investment strategist at Northwestern Mutual Wealth Management Co., said by phone. Consumers are in “the best shape they’ve been in in years and most recessions start with the consumer not in great shape. So any recession, if any under the current circumstances, would be mild.

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