A shaky day of trading on Wall Street ended with stocks slightly lower on Wednesday as a two-day rally ran out of gas.
Stock indexes were in the red for most of the day before briefly turning into the green following a late-night buying spree. The S&P 500 fell 0.2% after swinging between a low of 1.8% and a high of 0.4%. The benchmark index was coming off its best two-day gain since spring 2020.
The Dow Jones Industrial Average fell 0.1%, while the Nasdaq Composite fell 0.2%. The Russell 2000 index of small-cap stocks fell 0.7%.
Bond yields rose significantly. Following the OPEC+ cartel, oil prices also rose ordered to reduce production.
The broader market is still reeling from September’s stumble, but investors are hopeful that signs of a softening economy could persuade central banks to stop aggressively raising interest rates. Analysts say such hopes may be premature.
“It doesn’t surprise me that short-term traders want to lock in profits now and decide later whether this is the start of a prolonged bear market rebound or even the start of a new bull market,” said Sam Stovall, chief investment strategist at CFRA.
The S&P 500 fell 7.65 points to 3,783.28. The Dow fell 42.45 points to close at 30,273.87. The Nasdaq fell 27.77 points to 11,148.64. The Russell 2000 fell 13.07 points to 1,762.69.
Financial companies and utilities were among the sectors that weighed on the market. JPMorgan Chase fell 1.3% and Duke Energy fell 3.2%.
Technology and healthcare stocks rose. Qualcomm rose 2.1% and Illumina climbed 6.6%.
Energy stocks rose amid a 1.4% rise in U.S. crude oil prices. Exxon Mobil rose 4%.
Treasury yields rose and put more pressure on stocks after several days of relief. Higher yields mean higher borrowing costs for companies and also make bonds more attractive to investors compared to stocks.
The yield on the 10-year Treasury note, which helps set mortgage rates and many other types of credit, jumped to 3.75% from 3.61% late Tuesday.
The two-year Treasury yield, which more closely tracks expectations of Federal Reserve action, rose to 4.13% from 4.10% late Monday.
Wall Street is gearing up for the next round of corporate earnings reports to get a better sense of how hard four decades of inflation are weighing on businesses and consumers.
Higher energy prices, especially gasoline, became one of the main reasons for the increase in inflation at the beginning of the year. Stubborn inflation, despite lower energy prices over the past few months, remains a focus for investors. The Fed and other central banks are raising interest rates to make borrowing more difficult and slow economic growth, but Wall Street worries that the potential solution to high inflation could lead to a recession.
Investors are looking for signs that the economy is slowing enough to give central banks reason to ease rate hikes. Some signs this week included a tame rate hikes by the Reserve Bank of Australia and the US report shows that the number of available jobs fell sharply in August.
“We’ve heard of companies that, while they’re not laying off people, they’re reducing the number of jobs available,” Stovall said. “So higher rates and higher inflation are definitely affecting hiring.”
Employment has been a particularly strong area of the economy, and any sign that the red-hot labor market is cooling could mean inflation could follow. Analysts say such hopes may be premature. A report on US private sector job growth was stronger than expected on Wednesday, as was a report on the services sector.
Wall Street will get a more detailed look at US employment on Friday with the monthly government jobs report for September.
Stocks are “in the midst of a tug-of-war between reality and expectations,” said Terry Sandven, chief equity strategist at US Bank Wealth Management.
The reality is that inflation remains high, while markets expect it to have peaked and that the Fed will ease rate hikes, he said. Trading is likely to remain volatile due to these dynamics and other uncertainties looming over the market.
“We need time for inflation rates to show that they are under control,” he said.
The Fed has said it is determined to continue raising interest rates until it is satisfied that inflation is under control. This determination has been echoed by some central banks around the world.
New Zealand’s central bank raised its key interest rate to 3.5%, saying inflation remained too high, last seen at 7.3%, and labor shortages. The half-point rate hike was the fifth consecutive rate hike by the Reserve Bank of New Zealand since February.
Yuri Kageyama contributed to this report from Tokyo.
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