Wall Street drops as Treasury yields surge, Powell speaks

US stock market: US stocks ended solidly lower on Thursday, with shares of Tesla falling after its results and Treasury yields surging as Federal Reserve Chair Jerome Powell spoke about monetary policy and investors worried whether interest rates would stay higher for longer. Tesla (TSLA.O) shares dropped a day after the carmaker missed Wall Street expectations on third-quarter gross margin, profit and revenue, and its CEO Elon Musk said he was concerned about high interest rates affecting demand.

Treasury yields rose further and the benchmark 10-year note yield was at a 16-year high of almost 5 per cent. "The 10-year looks like it's establishing a new higher trend, which ... is putting pressure on equities, at least in the short term," said Oliver Pursche, senior vice president, advisor for Wealthspire Advisors in Westport, Connecticut.

"Markets were hoping that Jay Powell would indicate that the Fed is going to pause in its interest rate hikes, and he effectively hinted at the idea that they're going to have to raise again if they continue to have elevated concerns over inflation." Powell said at the Economic Club in New York that US central bankers were moving carefully on policy after aggressive rate hikes last year, but he added that the economy's strength and continued tight labor markets could warrant further rate hikes.

The rate-sensitive real estate sector (.SPLRCR) dropped 2.4 per cent and was the day's worst-performing S&P 500 sector.

The Dow Jones Industrial Average (.DJI) fell 250.91 points, or 0.75 per cent, to 33,414.17, the S&P 500 (.SPX) lost 36.6 points, or 0.85 per cent, to 4,278 and the Nasdaq Composite (.IXIC) dropped 128.13 points, or 0.96 per cent, to 13,186.18. The Cboe Volatility index (.VIX) jumped to its highest close since March.

Data this week has pointed to strong consumer demand and a tight labor market. A US Labor Department report on Thursday showed the number of Americans filing new claims for unemployment benefits fell to a nine-month low last week. The labor market is showing strength even though the central bank has raised its benchmark overnight interest rate by 525 basis points since March 2022.

Also in earnings, Netflix Inc (NFLX.O) shares jumped 16.1 per cent after the world's No. 1 streaming company by subscriber count said it was raising prices for some of its plans in the United States, Britain and France after adding 9 million users in the third quarter. Shares of American Airlines(AAL.O) rose 0.8 per cent after the company posted upbeat quarterly results. On Wednesday, airline stocks fell sharply after United Airlines (UAL.O) forecast current-quarter profit below analyst expectations.

Volume on US exchanges was 11.82 billion shares, compared with the 10.50 billion average for the full session over the last 20 trading days. Declining issues outnumbered advancing ones on the NYSE by a 3.96-to-1 ratio; on Nasdaq, a 2.96-to-1 ratio favored decliners. The S&P 500 posted 2 new 52-week highs and 37 new lows; the Nasdaq Composite recorded 15 new highs and 370 new lows.