Market drivers

Stocks are facing headwinds from the threat of higher interest rates, as Treasury yields continued to climb toward some of their highest levels in at least a dozen years.

Monday’s selloff in U.S. government debt was particularly strong in long-term securities. The rate on the 10-year note
BX:TMUBMUSD10Y
jumped by as much as 13 basis points to touch 4.7% and was on its way to the highest closing level since Oct. 12, 2007. The 30-year rate
BX:TMUBMUSD30Y
rose 8.1 basis points to 4.79%, headed for its highest since April 6, 2010.

Stopgap legislation that averted a potentially economy-damaging government shutdown provided some early support during Asian trading hours. But Treasury yields moved steadily higher as the session progressed, with investors reasoning it is now more likely the Fed will raise borrowing costs again this cycle.

Read: Stock-market investors focus on rising yields as government shutdown averted

Fed-funds futures traders priced in a 30.9% probability of a quarter-point rate increase on Nov. 1, up from around 18% on Friday. Fed Gov. Michelle Bowman said that multiple interest-rate hikes may be required to get inflation down. Federal Vice Chair for Supervision Michael Barr said on Monday that the central bank’s focus is on how long rates should stay high.

“Federal lawmakers secured a 45-day extension of current spending levels to dodge a government shutdown. However, the agreement is hardly a long-term solution, as tensions over government budgets are unlikely to dissipate,” said Jason Pride, Michael Reynolds and Ilona Vovk of the investment strategy team at Glenmede, which manages $42 billion in assets. “All else equal, each tightening of the government’s purse strings should act as a headwind to the economy and profits.”

Monday’s session kicks off the final quarter of 2023, a seasonal period that tends to see gains for stocks, particularly as the year draws to a close.

Read: Stock-market seasonality suggests a rally in the fourth quarter. Why this year might be different.

It follows a tough September, though, when the S&P 500 endured its worst month of the year, down 4.9%, as the 10-year Treasury yield surged to its highest level since 2007 amid concerns that sticky inflationary pressures would cause the Federal Reserve to keep interest rates higher for longer.

See: ‘Anxiety’ high as stocks fall, yields rise — what to know after S&P’s worst month in 2023

On Monday, the Institute for Supply Management’s manufacturing survey rose to 49.0% last month from 47.8% in August. Economists polled by The Wall Street Journal had forecast the index to register 48% in September. Numbers below 50% signal contraction. The index has been negative for 11 months in a row for the first time since the Great Recession of 2007 to 2009.

Better news came from China, where official data over the weekend showed the country’s manufacturing sector expanded in September for the first time in six months. That news initially helped the mood across global markets — though not in China itself, which was shut for the Golden Week holiday.

Keith Buchanan, a senior portfolio manager at GLOBALT Investments in Atlanta, which oversees around $2.5 billion, said the weekend showdown in Washington demonstrates “just how dysfunction can seep into the plumbing of our federal government, and is an ongoing risk.” “I don’t think that risk is behind us, and it is becoming a recurring issue that markets are starting to compartmentalize,” he said via phone on Monday.

Buchanan also said the developments in Washington haven’t changed his view on the markets. “We think that higher rates is really the tail wagging the dog in markets, and is the big story that’s causing the majority of the market moves we’re seeing right now,” he said.

There are a number of Fed speakers to start the week. New York Fed President John Williams is due to speak at an environmental economics conference at 1:30 p.m. Eastern time on Monday, and Cleveland Fed President Loretta Mester is slated to talk at 7:30 p.m.

Companies in focus

• Class A shares of AMC Entertainment Holdings Inc.
  AMC,
  +1.69%
  edged up. Variety reported over the weekend that the makers of a concert film of Beyoncé’s Renaissance World Tour are in advanced talks to distribute the film directly through AMC, following its deal to distribute the concert film “Taylor Swift: The Eras Tour” starting Oct. 13. Shares of Marcus Corp.
  MCS,
  +0.58%
  rose 9.5% after Marcus Theatres announced that it would show the Renaissance World Tour concert film.

• Shares of Tesla Inc.
  TSLA,
  -0.77%
  ticked lower after the electric-vehicle giant reported third-quarter deliveries that were well below already-lowered expectations.

• Rivian Automotive Inc.
  RIVN,
  -3.40%
  said Monday that it delivered 15,564 vehicles in the third quarter, more than double the 6,584 vehicles the electric-vehicle maker delivered in the same period a year ago. Its shares fell 2.3%.

• Nio Inc.’s American depositary receipts
  NIO,
  -3.60%
  were off 2.8%, after the China-based electric-vehicle maker reported a big jump in deliveries for both September and the third quarter, amid the launch of its new EC6 coupe SUV.

• Shares of Kellanova
  K,
  -6.22%,
   formerly known as Kellogg Co., and the new North America cereals business WK Kellogg Co. 
  KLG,
  -12.13%
  were off to a soggy start, with the new stocks falling in their first day of trading following the completion of their separation into two independent public companies. 

• SmileDirectClub Inc.’s Class A shares
  SDC,
  -64.89%
   plummeted 66% after the teeth-straightening company voluntarily filed for Chapter 11 bankruptcy protection as its founders committed to help recapitalize the company.

Jamie Chisholm contributed.