Rising interest rates and US bond yields are weighing on small-cap, bank, and utility stocks in the United States, dragging down the Russell 2000 and the KBW Nasdaq Bank Index, with many market segments down at least 5% from their recent highs after the 10-year US Treasury yield climbed to 5.34%, its highest level since 2002. Although the S&P 500 sits less than 2% below its all-time high, rate-sensitive small caps and the two aforementioned sectors have faced heavy selling. Since the Federal Reserve raised interest rates last month for the first time in three years to curb inflation, analysts at iCapital told Bloomberg TV that most stocks in the market have fallen at least 5% from their recent highs, while some segments are down more than 15%, largely due to higher interest rates and tighter financial conditions. The S&P 500 Equal Weighted Index is on track for a seventh consecutive weekly decline, and if it extends its slide through Friday, it would mark only the third such streak in history, following the aftermath of the dot-com bubble in 2002 and the 2022 bear market. Meanwhile, the Russell 2000 has just posted its second-worst quarterly underperformance versus the S&P 500 since 1999, trailing the large-cap index by nearly 10 points and falling 8.5% from its August 14 high, bringing it close to correction territory. Zombie stocks in the Russell 2000 account for more than one-third of all companies in the index.
10-year Treasury yield climbed to 5.34%, its highest since 2002, as rates rise.
Fed raised rates last month to curb inflation, pushing the effective policy rate higher.
