The interest rate on the 10-year Treasury note has reached its highest level in 16 years.

Early Thursday, futures for U.S. stock indexes experienced a significant decline as the Dow Jones Industrial Average was predicted to drop by 200 points upon opening. This downward trend was driven by increasing Treasury yields and a stronger U.S. dollar, which further strained the equity market.

How are stock-index futures trading

The Dow Jones Industrial Average (DJIA) dropped by 77 points, or 0.22%, to 34,441 on Wednesday. The S&P 500 (SPX) decreased by 42 points, or 0.94%, to 4,402, while the Nasdaq Composite (COMP) saw a decline of 209 points, or 1.53%, reaching 13,469.

What’s driving markets

It appears that U.S. stocks are likely to continue their decline from Wednesday due to the Federal Reserve’s indication that it intends to maintain higher interest rates for a longer period of time, with only one more rate hike expected later in the year.

The Fed’s “dot plot” projections, along with Powell’s hawkish comments during the press conference, played a role in pushing Treasury yields to their highest point in 16 years and causing the US dollar to reach its highest level in over six months. These factors were seen as negative influences on the stock market.

The greenback’s rally was further fueled by the Bank of England’s decision to keep interest rates unchanged on Thursday.

Additionally, American investors processed new economic information on Thursday. The count of individuals in the United States filing for unemployment benefits dropped to 201,000 during the previous week, marking the lowest point in eight months.

Stephen Innes, managing partner at SPI Asset Management, observed after the press conference on Wednesday that Powell’s proposed policies seemed highly harmful to the American stock market.

Innes mentioned in a note that there has been a shift in the narrative, with interest rates reaching new highs and causing an impact on the stock markets. This correlation between interest rates and the stock markets creates a more complex trading environment, as the increase in rates always brings some turbulence to the U.S. equity market.

The interest rate on the 10-year Treasury note BX:TMUBMUSD10Y increased to 4.474%, going up by 10 basis points, reaching its highest point since late 2007. Bond prices and yields have an opposite relationship. The ICE U.S. Dollar Index DXY, which measures the strength of the dollar compared to a group of other currencies, increased by 0.5$ to 105.63.

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