The stock trading week starting on September 13 shook up equity investors. The US 10-year Treasury bond yield jumped to 5.0%. Although the yield dropped by 11 a.m., it rose steadily to trade at 4.992% last night.
Investors holding the 7-10 year Treasury bond ETF (IEF) suffered from an unexpected price breakdown. IEF stock trended lower in the last year, from $98.04 to $93 last month. It closed at $90.93 after falling for one week straight. The debt market is adamant that the Federal Reserve will raise interest rates by 25 bps. It expects rates to increase by 50 bps by the end of the year.
The Fed might not want to change rates, ahead of the upcoming mid-term elections. But after the Houthis disrupted shipping upon seizing two Red Sea islands, inflation will worsen.
The oil services ETF (OIH) fell by 4.4% on Monday but is still in an uptrend. Markets are pricing in a disruption in drilling, evaluation, and protection services in the oilfield markets.
The combination of high bond yields and high oil prices will put substantial pressure on richly valued stocks. The technology sector is most vulnerable to a stock correction. Watch out for Micron Technology (MU), AMD, Intel (INTC), Nvidia (NVDA), and Broadcom (AVGO) dropping by more. Shares dropped by 3.3% or more yesterday.
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