US futures and European stocks experienced a downturn on Friday, as Wall Street braced for increased borrowing costs due to Federal Reserve Chair Jerome Powell's hawkish stance and surging 10-year Treasury yields. Powell's remarks, hinting at further rate hikes to tackle inflation, combined with the Fed's commitment to its 2% inflation target, put Wall Street under pressure.
On Friday, US primary stock index futures fell as 10-year Treasury yields neared a 16-year high. The potential of a 5% yield, unseen since 2007, has been bolstered by Powell's comments on the strength of the US economy and tight labor markets. This development has led to a global market downturn, with Asian shares also retreating amidst escalating tensions in the Middle East.
Dallas Fed President Lorie Logan suggested that increased bond market borrowing costs could allow the central bank to deliberate on its next policy move. BofA Global Research is forecasting a December rate hike of 25 basis points. As the Fed enters a media blackout before their November meeting, investors are closely tracking Philadelphia Fed President Patrick Harker and Cleveland Fed President Loretta Mester.
Shares of American Express (NYSE:AXP) rose in premarket trading after beating Q3 profit estimates, while Schlumberger Limited's (NYSE:SLB) shares fell despite surpassing profit expectations. In other market news, SolarEdge (NASDAQ:SEDG) shares dropped following a Q4 revenue warning, causing similar reactions in other solar firms like Enphase Energy (NASDAQ:ENPH) and First Solar (NASDAQ:FSLR). Intuitive Surgical (NASDAQ:ISRG) also saw a decrease in shares after missing quarterly sales estimates.
The market sentiment was reflected in the decrease of Dow e-minis, S&P 500 e-minis, and Nasdaq 100 e-minis. The 10-year Treasury yield stood at 4.9392%, with CME's FedWatch Tool indicating a high likelihood that the Fed will maintain benchmark rates in its November meeting as part of the rate-setting Federal Open Market Committee (FOMC)'s actions. The ongoing Israel-Gaza conflict is also being closely monitored by investors, adding to the overall market volatility.
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