Wednesday began like a lot of August has: uncertain, a little bruised, and waiting for something to change. Before the opening bell, futures were hardly moving. The bond market was showing numbers not seen in almost 20 years, and the Dow Jones Industrial Average had just closed lower for the third consecutive session. On Tuesday, the 30-year Treasury yield momentarily reached 5.34%, its highest level since 2007. That’s not merely a data point for context. A figure like that makes mortgage lenders uneasy, CFOs reevaluate plans for growth, and regular investors secretly question whether the market has lost its footing.
The Treasury Department intervened after that. The Treasury announced in the middle of the morning that, starting in early September and continuing through early November, it would at least double its buyback of longer-term notes. Although some analysts quickly dismissed it as cosmetic (LPL Financial’s chief fixed income strategist Lawrence Gillum described it as “more of a band-aid than a panacea”), the response was instantaneous. The yield on the 30-year loan dropped to 5.194%. The 10-year fell six basis points to 4.65%, and stocks found something to hang onto after a cautious start to the session. The Dow Jones closed at 53,463.05, up 119.65 points. A gain of 0.22%. After three days of losses, it was modest but significant.
It’s important to note that the Fed released its July meeting minutes on the same day, and those minutes did not provide much solace. The Federal Open Market Committee appeared to be becoming more divided on how to deal with inflation that has just refused to behave, and three members had voted for a quarter-point rate increase. “Many participants assessed that policy tightening would likely be necessary if inflation did not decline,” the minutes stated. When geopolitical risk keeps popping up and global yields are already this high, it’s the kind of language that lands differently.
In relation to that, Iran has persisted. Reopening negotiations for the Strait of Hormuz are still on hold. Oil prices remained high, hovering around $91.65 per barrel for Brent crude, and continued to cast a shadow over fall consumer spending forecasts. The ceasefire optimism of a few weeks ago seems to have quietly vanished in the markets, giving way to a more pessimistic notion that this standoff might just become the new background condition for investing.
However, things weren’t all bad. In a distracting trading day, Moderna provided what may be the most truly important news. After late-stage trial data revealed that the company’s customized mRNA cancer vaccine, created in collaboration with Merck and their medication Keytruda, achieved its main objective in melanoma patients, the company’s stock increased by more than 175%. This is the type of outcome that is uncommon. The data indicated that the trial, which aimed to improve recurrence-free survival in patients who had previously undergone surgery, was successful. Health stocks led sector gains throughout the S&P 500, Merck increased 13%, and for a few hours, oncology rather than the bond market dominated headlines.
Retail earnings showed the typical mixed picture elsewhere. Target increased by about 4.5%, Lowe’s increased by about 2.5%, and TJX decreased by 4%. La-Z-Boy suffered the most damage; following an unexpected quarterly loss and a sales miss that caught analysts off guard, shares fell by almost 18%. Estée Lauder, on the other hand, saw a 16% increase due to better-than-anticipated results, serving as a reminder that some brands can still succeed in a volatile consumer market.
Despite Congress being in recess, Bitcoin cleared $68,000 for the first time since June, in part due to the optimism surrounding the Treasury announcement and in part because of the renewed interest in crypto legislation. Whether this is a long-term rebound from the steep drop off October’s peak near $126,000 or just another brief surge in a market that has been looking for guidance is still up in the air.
In the end, today’s session demonstrated something that investors are constantly relearning: when anxiety has been building for a sufficient amount of time, the market can find relief in small gestures. It’s possible that the Treasury’s buyback plan won’t address any structural issues. The Fed remains split. There is still geopolitical tension. Nevertheless, yields decreased and the Dow ended the day higher, and for one Wednesday afternoon in mid-August, that was sufficient.
