High interest rate worries pressure stocks

This report is from today’s CNBC Daily Open, our international markets newsletter. CNBC Daily Open brings investors up to speed on everything they need to know, no matter where they are. Like what you see? You can subscribe here.

Mixed markets, rising yields
U.S. markets were mixed on Monday. The Nasdaq Composite rose while the S&P 500 and the Dow Jones Industrial Average fell, with the latter snapping its three-day winning streak. The 10-year Treasury yield jumped almost 12 basis points. Asia-Pacific markets fell on Tuesday. Australia’s S&P/ASX 200 lost 1.66% to touch its lowest closing level in around two weeks.

Shares of Hyundai Motor India fall
Hyundai Motor India shares retreated more than 5% on Tuesday – their trading debut –  according to BSE data. Hyundai Motor India is a wholly owned Indian subsidiary of South Korean automaker Hyundai. Its initial public offering attracted 278.56 billion rupees ($3.3 billion) and was oversubscribed by more than two times, according to Reuters.

New bullish phase for gold
Gold prices hit a record high of $2,700 per ounce on Monday, and are continuing their ascent Tuesday. The precious metal is in a “new bullish phase,” Paul Wong, market strategist at Sprott Asset Management, wrote in a note. Citi analysts think the price of gold will climb to $3,000 per ounce within the next six to nine months.

Restrictions on investments into China
The U.S. is in the final stage of reviewing measures that will curb investments into key technologies in China, according to an update by the U.S. government. The rules will cover sensitive technologies like artificial intelligence, semiconductors and quantum computing. The final rules will likely be released within the “next week or so,” according to Reuters.

[PRO] Top biotechnology stocks
Thanks to looser monetary policy across the world, investment in the biotechnology sector will ramp up, speeding up product development, said an equity analyst at Scotiabank. Three biotechnology firms are Scotiabank’s “top picks,” said the third-largest Canadian bank, with one having a potential upside of 100%.

High interest rates were supposed to put a lid on a hot U.S. economy, thereby cooling inflation as well. It’s worked so far: Inflation has fallen from a peak of 9.1% in June 2022 to  2.4% in September 2024, going by the annual rate of the consumer price index.

But “putting a lid” on something, in culinary terms, also helps to keep the heat circulating within a space. That’s what the U.S. economy, like a stew constantly simmering, seems to be doing.

Despite the Conference Board’s Leading Economic Index falling more than expected in September, experts and markets think both the economy and interest rates will remain warm — if not hot — to the touch.

“We’ve raised rates a lot, and the US economy has basically absorbed them and still continues to perform quite well,” Minneapolis Federal Reserve President Neel Kashkari said on Monday. That indicates “the neutral rate seems to be higher” at this point of time, Kashkari added.

The neutral rate is the point at which interest rates neither stimulate nor hold back the economy. In other words, the long-term interest rate might end up higher than its historical average.

The 10-year Treasury yield reflected that concern. After climbing nearly 12 basis points, it’s now around 4.19%.

“Bond yields continue to back up, which implies to me that investors are now thinking that the Fed will be slower to lower interest rates,” said CFRA Chief Investment Strategist Sam Stovall.

Rising yields put pressure on stocks. The S&P 500 fell 0.18% and the Dow Jones Industrial Average lost 0.8% to break its three-day winning streak. The Nasdaq Composite, however, managed to gain 0.27%.

Hot stew is delicious. But, as Goldilocks has taught us, too hot and it’ll burn our tongue. Too cold and it’s unpalatable. It has to be just right.

— CNBC’s Jeff Cox, Samantha Subin, Pia Singh and Sarah Min contributed to this report.