Wall Street ended lower on Wednesday after a surge in long-dated US Treasury yields revived concerns over inflation and higher borrowing costs, just a day after the S&P 500 and Nasdaq reached record closing highs.
The Dow Jones Industrial Average fell 341.11 points, or 0.66%, to 51,180.17, while the S&P 500 lost 17.18 points, or 0.22%, to 7,801.75. The Nasdaq Composite declined 61.19 points, or 0.22%, to 27,538.69.
The 30-year Treasury yield touched a 24-year high while Brent crude settled above US$100 a barrel, raising concerns that higher energy costs could keep inflation elevated and extend the Federal Reserve’s rate hiking cycle.
The small-cap Russell 2000 underperformed the major indexes, falling 1.3%.
Stocks pared losses after oil prices turned lower following an agreement by the International Energy Agency to accelerate the release of oil stocks, with diesel supplies prioritised.
Minutes from the Federal Reserve’s September meeting also showed a split over the rationale behind its first rate hike since July 2023. Some policymakers saw higher rates as necessary to contain the inflation impact of energy price shocks, while others viewed the increase as needed to curb demand-driven inflation.
Financial markets are pricing in a 17.2% chance of another rate hike at the Fed’s October meeting, down from 37.6% a week earlier, according to CME’s FedWatch tool.
“The market’s Fed expectations are going to seesaw as it gets new bits of data,” said Thomas Martin, senior portfolio manager at GLOBALT in Atlanta. “There’s still an expectation for more rate hikes, but it isn’t necessarily going to be a hike every meeting and that’s what the market is telling you; October will be a pause.”
Rising Treasury yields also weighed on interest rate-sensitive sectors. Housing stocks fell 2.3% while homebuilders declined 2.9% after the 30-year fixed mortgage rate rose to a near three-year high last week.
Chip stocks fell 1.2% despite gaining more than 80% so far this year.
SpaceX dropped 2.5% following reports that Elon Musk’s aerospace company was seeking US$40 billion in financing to fund purchases of Nvidia chips.
Investors will next turn to the third-quarter earnings season, with several major financial firms expected to report results next week.
Analysts expect aggregate S&P 500 earnings to grow 30.6% year on year for the July to September quarter, according to LSEG, with investors watching whether heavy spending on artificial intelligence is beginning to translate into stronger earnings and how US consumer demand is holding up amid renewed inflation pressures.
Reuters
