Global stock markets rebounded Thursday as Treasury yields and oil prices retreated from the highs set after the Federal Reserve's rate hike a day earlier. The Dow, S&P 500 and Nasdaq all posted gains, but strategists warned a further climb in the 10-year Treasury yield could still threaten the rally.
The Dow Jones Industrial Average climbed 318 points, or 0.6% on Thursday. The S&P 500 rose 1.1%, and the Nasdaq Composite added almost 1.7%, as traders clawed back losses from Wednesday's sell-off. That sell-off followed the Fed's first interest-rate hike in three years.
Yields and oil ease pressure
Treasury yields pulled back Thursday, with the benchmark 10-year yield dropping more than 5 basis points to 4.945%, after briefly rising back above 5% the day before. Globally, MSCI's gauge of stocks across the world rose 0.79%, poised to snap three straight sessions of losses.
Oil prices also declined, easing cost pressures on equities. Brent crude dropped nearly 1% to settle at $104.82 a barrel after Saudi Arabia reportedly made more crude cargoes available to Asian refiners through ship-to-ship transfers near Oman's Sohar port. That eased concern over supply disruption tied to attacks on the kingdom's East-West pipeline.
Central banks diverge
The Fed raised the overnight federal funds rate by a quarter percentage point Wednesday, and Chairman Kevin Warsh said inflation remains too high, with policymakers signaling another hike could come this year.
The Bank of England, by contrast, held its Bank Rate at 3.75% in a 6-3 vote Thursday, though the three dissenters favored a 25-basis-point hike. The Bank of Japan is expected to raise its key interest rate at the end of its two-day meeting Friday.
Why 5% on the 10-year matters
A breakout above 5% on the 10-year Treasury yield could pressure stocks broadly and the artificial-intelligence trade in particular, according to Breakout Capital founder Ruchir Sharma. He called the 10-year Treasury "the most important asset in the world" because it sets the baseline for borrowing costs across the economy.
Sharma pointed to historical data showing the equity-bond correlation turns positive once the yield clears that level, and said equities tend to fall once the yield moves above 5.25%. The yield had already touched a 19-year high earlier this week before Thursday's pullback.
Sources: CNBC, CNBC, Reuters via Investing.com
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