Wall Street faced a turbulent session on Wednesday as U.S. stocks fell, driven by escalating Treasury yields and growing uncertainty about the Federal Reserve’s interest rate policy. The Dow Jones Industrial Average dropped over 1%, marking its lowest level in nearly a month, while all sectors of the S&P 500 ended in the red, with rate-sensitive utilities among the hardest hit.
The yield on the benchmark 10-year U.S. Treasury note reached a four-week high of 4.6%, extending Tuesday’s gains following lackluster debt auctions. “You continue to see this rise in bond yields, which is pressuring equities. It’s a continuation of this unstable, uneven recovery,” commented James Abate, fund manager of the Centre American Select Equity fund.
Market sentiment has been volatile this year, with conflicting expectations about the timing and extent of potential interest rate cuts. Persistent inflation and hawkish remarks from central bankers have led traders to scale back their rate cut forecasts. According to the CME FedWatch Tool, only one rate cut is now anticipated by November or December, down from multiple cuts expected earlier in the year.
The release of the Federal Reserve’s Beige Book survey provided additional context but did little to alleviate market jitters. The survey indicated that U.S. economic activity continued to expand from early April through mid-May, although firms grew more pessimistic about the future while inflation increased modestly.
By the close of trading, the S&P 500 had lost 39.09 points, or 0.74%, to settle at 5,266.95. The Nasdaq Composite fell 99.30 points, or 0.58%, to 16,920.58, and the Dow Jones Industrial Average dropped 411.32 points, or 1.06%, to 38,441.54. Notably, the Nasdaq retreated after surpassing the 17,000 mark for the first time on Tuesday, and the small-cap Russell 2000 index declined by 1.5%.
Attention now shifts to Friday’s release of April’s Personal Consumption Expenditure (PCE) data, the Fed’s preferred measure of inflation, which could provide further clues on monetary policy.
In corporate news, shares of Salesforce plunged more than 15% after the company reported results and forecast second-quarter revenue below estimates, despite ending the regular session up 0.7%.
Conversely, Marathon Oil shares surged 8.4% after ConocoPhillips announced an all-stock acquisition deal valued at just over $15 billion. ConocoPhillips shares fell 3.1%, contributing to the energy sector’s overall 1.8% decline. Airline stocks also took a hit, with American Airlines dropping 13.5% following a downward revision of its second-quarter profit forecast.
There were some bright spots: Dick’s Sporting Goods soared 15.9% after raising its annual sales and profit forecasts, and Abercrombie & Fitch jumped 24.3% on an improved annual sales growth outlook.
Despite these gains, the broader market saw more decliners
than advancers, with a 2.78-to-1 ratio on the Nasdaq and a 5.25-to-1 ratio on the NYSE. The S&P 500 recorded 7 new 52-week highs and 16 new lows, while the Nasdaq Composite logged 45 new highs and 149 new lows. Trading volume on U.S. exchanges was 12.24 billion shares, slightly below the 12.38 billion average for the last 20 trading days.
As investors continue to navigate through mixed economic signals and rising bond yields, all eyes will be on upcoming economic data, including the PCE inflation report, which could significantly influence the Federal Reserve’s policy decisions in the coming months. The financial markets remain on edge, balancing between hopes for a softer economic landing and fears of prolonged inflationary pressures.