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10-year Yields Reach New Highs and the Removal of Kevin McCarthy

By:JJ Kinahan

Also, Netflix price hike and healthcare strikes

  • The market plunges as Kevin McCarthy is ousted as speaker of the house, while a government shutdown still looms and the VIX has spiked.
  • Rising interest rates are affecting regional banks, the strong dollar is influencing international sales and a grim earnings season expected.
  • Netflix is raising prices after the Hollywood strikes, healthcare workers are going out on strike, streaming service pricing is being limit tested and the markets are plunging into turbulence.

Yesterday proved tumultuous for the financial markets and could have far-reaching consequences. Let's explore the implications for investors by diving into three takeaways.

The most striking and unprecedented development was the removal of Kevin McCarthy from his role as speaker of the House—the first time in U.S. history such an event has occurred. This seismic political shift comes at a critical juncture, with the looming possibility of a government shutdown and Congress in a state of turmoil. The uncertainty sent market volatility soaring, with the Cboe volatility index, or VIX, briefly surpassing the psychologically significant 20-point threshold before closing at 19.78. Bulls in the market hope to see the VIX remain below this level, but the situation remains fluid.

On the economic front, rising interest rates have begun to cast a shadow over various sectors of the market. The yield on 10-year notes reached 4.80%, its highest level since 2007, while 30-year bonds are approaching levels not seen in over a decade. Although higher rates are typically favorable for banks, the rapid ascent in rates has led to a challenging situation for many regional banks. The S&P Regional Banking Index has tumbled by 32% this year, as institutions find themselves borrowing money at higher rates than they're collecting on some outstanding loans.

This surge in interest rates also has ramifications for the upcoming earnings season. Over the past decade, many companies capitalized on low-interest rates to raise capital through bond sales. However, it appears this era of low-cost capital is coming to an end. As a result, there's concern we could be in for a rather grim earnings season, with companies grappling with the impact of higher rates and a robust U.S. dollar on their international sales.

Another noteworthy development is Netflix's announcement of a price hike once the Hollywood strikes conclude. This decision raises questions about how much viewers are willing to pay for streaming services before finding them comparable to traditional bundled cable packages. The streaming industry is reaching a point where affordability could become a significant factor.

In addition, the labor landscape has seen further turbulence as 75,000 healthcare workers from Kaiser Permanente walked off the job this morning. It's the largest healthcare strike in U.S. history and reflects the continued tensions between healthcare workers and companies that have persisted since the outbreak of COVID-19. The strike could disrupt services for up to 13 million people in six states, as non-essential services may be suspended.

As we assess the market's current state, it's evident that a confluence of factors, including rising interest rates, a strong dollar, and political turmoil, are generating headwinds for investors. With the approaching third-quarter earnings season, market volatility could intensify. Therefore, it's essential to stick to your investment plans and long-term objectives. While short-term turbulence can be unsettling, it may also present opportunities for astute investors.

JJ Kinahan is CEO of IG North America—which includes tastylive, tastytrade and IG's FX Business. Kinahan traded for 21 years at the Chicago Board Options Exchange. He serves on the CBOE Advisory Board and the SIFMA Options Committee. @thejjkinahan 

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