On October 23, U.S. stock markets took a notable pause in the midst of a months-long bull run. All three major indices fell sharply, with the Nasdaq leading the decline, dropping 1.6%. The Dow Jones Industrial Average and S&P 500 followed, down 0.96% and 0.92%, respectively.
Most major tech giants were not spared in the sell-off. Nvidia dropped nearly 3%, and Apple lost more than 2% on the day.
There was, however, a rare bright spot: Tesla surged more than 9% in after-hours trading, despite reporting revenue below expectations for Q3. Investor optimism was buoyed by the company’s guidance that it expects modest delivery growth for 2024.
Why Did U.S. Markets Fall?
While equities declined, U.S. Treasury yields rose sharply. The 10-year yield briefly exceeded 4.25% during intraday trading—the highest since July 26. Both the U.S. dollar and bond yields have shown significant strength in recent weeks.
The U.S. Dollar Index has gained nearly 4% in October, while non-dollar currencies have broadly weakened. The rise in bond yields reflects shifting market expectations about future interest rates.
Although the Fed’s Beige Book suggests inflation is gradually easing, market participants have tempered expectations for aggressive Fed rate cuts. Futures markets now price in a 93% chance of a 25-basis-point rate cut in November, with only a 7% chance the Fed will hold steady.
Political Uncertainty Adds Fuel to Volatility
With the U.S. presidential election approaching, political dynamics are increasingly influencing markets.
Latest polls show that while Democratic candidate Kamala Harris maintains a narrow lead over former President Donald Trump, the gap is narrowing. On prediction markets like PredictIt and Polymarket, Trump is now leading, reflecting investor expectations around differing economic policies under each candidate.
Markets are particularly concerned that a Trump victory could lead to wider fiscal deficits and potentially higher inflation, fueling volatility in both equities and bonds.
Wall Street Responds to Election Risks
Anticipating election-related market swings, Wall Street firms are taking precautionary measures. Several large financial institutions are reportedly increasing staff capacity to handle high trading volumes around the election.
One major bank has built a full-scale trading setup in its New York office for global teams and is preparing to shift personnel if needed. Meanwhile, a large retail brokerage is closely monitoring social media platforms for early signs of abnormal investor behavior or sentiment shifts.
A Divergence With Global Implications
The inverse moves in U.S. equities and Treasuries could have broader consequences for the global economy.
• A sustained decline in U.S. stocks may dent global investor sentiment and trigger heightened volatility in international markets.
• Rising Treasury yields could draw capital away from non-dollar assets, exerting pressure on emerging markets and non-U.S. currencies.
Conclusion
October 23 was a reminder that even within a bull market, volatility and uncertainty can reemerge quickly. With rising yields, election risks, and shifting monetary policy expectations, U.S. markets are entering a more fragile phase.
Investors will need to stay nimble, and risk management will be more critical than ever as political and economic crosscurrents intensify ahead of November.
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