NEW YORK (AP) – A rapid jump in Treasury yields shook Wall Street on Wednesday, causing a drop in equities at the start of another month in what has been a turbulent year for the market.
The S&P 500 ended 0.7% lower after an early morning gain quickly gave way to a hectic business. The Dow Jones Industrial Average fell 0.5% and the Nasdaq 0.7%.
Shares began to decline immediately after the release of several reports on the US economy, including one showing that manufacturing growth was stronger last month than expected. This reinforced investors’ expectations that the Federal Reserve will continue to raise interest rates aggressively to slow the economy in hopes of curbing inflation.
“Investors are worried about the arrival of the Fed meeting, and as inflation is expected to remain stubbornly high, the Fed is unlikely to get away with the initial burden of the rate-tightening cycle. then it will stop in the fall, “said Sam Stovall, chief. investment strategist at CFRA.
The S&P 500 fell 30.92 points to 4,101.23. The Dow fell 176.89 points to 32,813.23, after losing an initial gain of 282 points. The Nasdaq compound fell 86.93 points to 11,994.46. It also ended in red after giving up an initial 1.3% increase.
The shares of smaller companies also lost ground. The Russell 2000 index fell 9.22 points, or 0.5%, to 1,854.82.
Daily market changes have become routine on Wall Street amid concerns that the Fed’s too-aggressive rate hikes could force the economy into a recession. Even if you can avoid suffocating the economy, higher rates put downward pressure on stocks and other investments independently. Meanwhile, high inflation is consuming corporate profits, while the war in Ukraine and anti-COVID-19 restrictions in China have also affected markets.
The Fed has indicated that it may continue to raise its key short-term interest rate by twice the usual amount at the next June and July meetings. Speculation was built last week that the Fed might consider a pause at its September meeting, which helped lift stocks. But those expectations fell after Wednesday’s manufacturing report from the Institute for Supply Management.
It showed that US manufacturing growth accelerated last month, contrary to economists’ expectations of a slowdown. A separate report said the number of job vacancies across the economy fell slightly in April, but remains much higher, at 11.4 million, than the number of unemployed.
Following the reports, traders are now betting on a 60% chance that the Fed will raise its short-term benchmark rate to a range of 2.25% to 2.50% at its September meeting. One week ago, most bets were at a lower level, in the range of 2% to 2.25%, according to CME Group.
The two-year Treasury yield, which tends to follow the expectations of Fed moves, jumped with those expectations. It rose to 2.66%, up from 2.56% just before the release of the manufacturing report.
Wednesday also marks the start of the Fed’s program to reduce some of the $ 1 trillion in Treasury bonds and other bonds it accumulated during the pandemic. This move should push up long-term rates.
The 10-year Treasury yield rose to 2.92% from 2.84% just before the report was released.
Airlines and the shares of other travel-related companies were some of Wednesday’s big losses on Wall Street amid concerns that inflation would cut their profits.
Delta Air Lines, for example, said it expects to see fuel costs of $ 3.60 to $ 3.70 per gallon this quarter, more than its previous forecast of up to $ 3.35. Even out of fuel, Delta said spending could rise by up to 22% above 2019 levels per seat. This is more than a previous forecast of 17%,
Shares of Delta fell 5.2% but also said revenue trends are strengthening. With passengers paying higher fares, Delta said it could get a key revenue measure to return to 2019 levels.
Norwegian Cruise Line and United Airlines lost 4.5%.
On the winning side were energy stocks, which rose with the price of crude oil. ConocoPhillips gained 3% and Exxon Mobil rose 1.9% as the benchmark U.S. crude oil barrel rose 0.5% to $ 115.26. Brent crude, the international standard, rose 0.6% to $ 116.29.
The S&P 500’s biggest gain came from Salesforce.com, which posted stronger earnings in the last quarter than analysts expected and boosted its forecast for the year. Its shares rose 9.9%.
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Vega reported from Los Angeles.