US Long-Term Yields Rise Again, Hitting Wall Street
The three main indices in New York closed lower on Thursday, August 20. The Dow Jones fell 1.31% to 42,762 points. The S&P 500 lost 0.86%, ending at 5,641 points. The Nasdaq dropped 1% to 17,067 points.
The trigger was not a surprising economic data point or a monetary policy decision. It was something more structural and, therefore, more concerning: long-term Treasury yields rose again, even after the US Treasury Department announced it would double the size of its long-term bond buyback operations.
The market interpreted the measure as insufficient given the fiscal trajectory of the United States. And when the remedy fails to convince, the symptom worsens.
Why the Treasury Buyback Did Not Hold Long-Term Rates
The logic behind the long-term bond buyback is simple: the Treasury removes paper from the market, reducing supply and, in theory, alleviating pressure on yields. It is an attempt at active management of the yield curve without relying on the Federal Reserve.
The problem is that the size of American debt has already surpassed the capacity of these tools to have a lasting effect. Investors look at the projected fiscal deficit, the trajectory of public debt as a proportion of GDP, and conclude that one-off purchases do not change the underlying equation. The yield on the 30-year Treasury remains close to yearly highs, reflecting an increasingly evident fiscal risk premium.
For those following the global macroeconomic landscape, the signal is clear: the market is demanding more to finance the US government over long terms. And this has a cascading effect on nearly all asset classes.
Walmart Drops 9% Despite Raising Projections: The Paradox of Expectations
The case of Walmart illustrates the current market environment well. The world's largest retailer raised its profit and sales growth targets for the first time this year. In any normal scenario, this would be a positive catalyst. But shares fell 9.2%, the largest drop in the Dow Jones for the day.
The reason: the revised numbers fell short of what Wall Street had already priced in. The American market has been operating with stretched multiples for quarters, and any result that does not exceed inflated expectations is severely punished. This is the type of dynamic that appears at cycle peaks, when the margin for error disappears.
On the other side of the spectrum, Deere jumped 8.9%, leading the S&P 500 after reporting third-quarter fiscal results above expectations. After months of pressure on the agricultural sector, the numbers provided some relief. But Deere's case was an exception, not the rule.
Geopolitics and Oil: The Threat to Iran Enters the Equation
An additional factor weighed on market sentiment. President Donald Trump threatened to financially isolate Iran, which raised oil prices and benefited energy company stocks. ConocoPhillips rose 3.3%, APA Corp advanced 2.2%, Diamondback Energy gained 1.18%, and Halliburton closed up 1.91%.
Higher oil prices, in a context of rising long-term rates, create a combination that pressures implied inflation. And higher implied inflation reinforces the cycle of elevated long-term rates. It is a loop that complicates any attempts at monetary easing by the Fed, as we have already analyzed regarding the impact of rates on risk assets.
-- Price
Gold, Bitcoin, and Crypto Ride the Fiscal Doubt
While the indices fell, two assets stood out positively: gold and bitcoin. The miner Newmont rose 2%. Strategy, the largest corporate bitcoin accumulator, advanced 7.8%. Coinbase closed up 7.6%.
It is no coincidence. When the market questions the fiscal sustainability of the issuer of the global reserve currency, assets that serve as alternatives to the dollar gain traction. Gold has fulfilled this role for centuries. Bitcoin has been consolidating this narrative in recent years.
In addition to the fiscal issue, the crypto sector received another boost: Trump urged Congress to pass legislation on digital currencies, giving more regulatory visibility to the sector. For those following the regulatory evolution of cryptocurrencies, this type of presidential statement tends to accelerate the legislative process, even if the details are still uncertain.
Moderna and the Danger of One-Day Euphoria
Moderna plummeted 23.6%, giving back a portion of the nearly 175% rally recorded the day before after news about its experimental melanoma vaccine. It is a brutal reminder of how the biotechnology market works: euphoria over preliminary results can be followed by violent corrections when reality sets in.
For the investor who entered the stock at the peak, the loss in a single trading session was devastating. This type of volatility reinforces the importance of understanding the difference between short-term speculation and fundamental-based investment.
What Investors Should Watch Going Forward
The scenario unfolding is one of structurally higher long-term rates in the United States, not by decision of the Fed, but due to fiscal pressure. This has direct implications for the valuation of growth stocks, the cost of corporate financing, and the relative attractiveness of risk assets.
Three variables deserve attention in the coming weeks: the trajectory of 20 and 30-year Treasury yields, the developments of geopolitical pressure on Iran and its impact on oil, and the ability of the American Congress to advance with some fiscal discipline. Without progress on this last front, the market will continue to demand a premium, and declines like those of Thursday are likely to repeat.
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