Treasury yields rose and stocks fell after strong economic data bolstered the case for the Federal Reserve to keep interest rates higher for longer.
Two-year US yields reached their highest level since 2006, while 10-year yields rose 13 basis points to 4.83%. Swap contracts tied to Fed rate decisions revealed that traders are pricing in more than 60% of policymakers raising interest rates by a quarter percentage point in January after holding them steady in November. A December move is considered possible, but less likely than a January move.
The S&P 500 lost ground, led by losses in its most influential sector, technology. Nvidia fell as the US restricted the sale of chips designed for the Chinese market. Goldman Sachs fell after reporting a 33% drop in profit. Bank of America rose after reporting its best third-quarter results in more than a decade.
Retail sales exceeded all forecasts last month, and industrial production increased, providing new evidence of a resilient American consumer whose spending is helping to stabilise manufacturing. The reports prompted a slew of economists, from Goldman Sachs to JPMorgan and Morgan Stanley, to raise their third-quarter GDP tracking estimates.
Fed Bank of Richmond President Barkin stated that policymakers "have time" to determine whether they can keep interest rates steady or if they need to raise them further to achieve the 2% inflation target.
Traders also kept a close eye on recent geopolitical events, with President Joe Biden scheduled to visit Israel on Wednesday as a show of solidarity following the Oct. 7 attack by Hamas, which is designated as a terrorist organisation by the US and the European Union. After ordering people to seek refuge in the south of the Gaza Strip, Israel launched an attack.