The stock market logged yet another day in the red today in an already tumultuous year for equity investments. The S&P 500 closed down 1%. Meanwhile, the Nasdaq Composite and Dow Jones Industrial Average are in the red by a little over half a percent. Why are stocks down today?
It’s difficult to pin today’s stock market slump on any one variable. Rather, it’s likely a host of different market forces weighing down names like SoFi Technologies (NASDAQ:SOFI), Robinhood (NASDAQ:HOOD), Carnival (NYSE:CCL), Intel (NASDAQ:INTC), Advanced Micro Devices (NASDAQ:AMD) and more.
For one, Russia’s invasion of Ukraine continues to disrupt global supply chains. Gas prices remain elevated across the U.S., with West Texas intermediate crude oil prices hitting $122 per barrel today. That’s the highest level since February.
On Friday, the Bureau of Labor Statistics will also release the new Consumer Price Index. It’s projected to reflect largely stagnant inflation from last month, in which the bureau reported 8.3% inflation.
The markets may be showing some sheepishness ahead of next week’s Federal Reserve meeting as well. The central bank is expected to approve another 50 basis-point interest rate hike. This will be yet another detriment to typically leveraged tech and growth stocks. Tech stocks have been relentlessly pushed down this year and further hikes will be only add to the bearishness. The tech-heavy Nasdaq Composite is down nearly 23% year-to-date (YTD).
Why Are Stocks Down Today?
That’s not all, though. This week, 10-year Treasury yields are over 3%, floating around the highest level in three years. High Treasury yields put pressure on investors to dump their equity positions in favor of the higher return, low-risk government debt instruments. As such, this currently elevated level comes as something of a bearish sign.
Treasury yields are also historically correlated with mortgage rates and student loan rates. While student loans are on pause with 0% interest currently, the student loan moratorium ends August 31. High Treasury yields could reflect elevated loan rates later this summer.
Meanwhile, mortgage rates — which tend to move in line with 10-year yields — have been rising since the start of the year. Mortgage rates are now at even more risk to jump in response to interest rate hikes. In fact, per the Mortgage Bankers Association, mortgage applications fell more than 6% last week, fueling the the lowest level of refinancing activity in over 20 years.
This week represents a sort of calm before the storm. Investors are likely preparing for Friday’s inflation report and next week’s nigh-guaranteed interest rate hike. Today’s mild drop could be a precursor of more losses to come, although only time will tell.
On the date of publication, Shrey Dua did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
