Market Snapshot
Dow falls over 200 points as Treasury yields rise with climbing oil prices reviving inflation concerns
Futures Movers
U.S. oil prices score longest streak of daily gains in over 4 years
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U.S. stocks traded lower on Wednesday afternoon, as investors remained wary of higher Treasury yields after a stronger-than-estimated reading on the services industry for August, while rising oil prices revived concerns over inflation and more interest-rate hikes by the Federal Reserve.
The latest Beige Book from the Federal Reserve shows that the U.S. economy grew at a modest pace in July and August, while job growth was subdued across the country.
How are stocks trading
- The Dow Jones Industrial Average fell 221 points, or 0.6% to 34,420
- The S&P 500 dipped 39 points, or 0.9% to 4,458
- The Nasdaq Composite dropped 173 points, or 1.2% to 13,846
On Tuesday, the Dow, S&P 500 and Nasdaq Composite all ended lower as U.S. investors returned from a three-day holiday weekend.
What’s driving markets
An ISM barometer of U.S. business conditions at service companies such as restaurants and hotels strengthened to 54.5% in August from 52.7% in the prior month. This is the highest level since February and the eighth straight reading above the 50% threshold that indicates expansion in the economy. Economists polled by the Wall Street Journal had expected the index to slip to 52.5%.
“This is the kind of inflation data the Fed is fighting and it’s fighting inflation within the services component of the economy which accounts for two-thirds of the U.S. economy,” said Matt Stucky, senior portfolio manager at Northwestern Mutual Wealth Management.
The U.S. service sector was in a “pretty resilient situation” and it “speaks to the resiliency of what economic performance has been in 2023,” Stucky told MarketWatch in a phone interview.
See: Oil trades at 2023 highs. Are U.S. prices headed for $100?
The price of Brent crude on Tuesday rose above $90 a barrel for the first time since November, after Saudi Arabia and Russia said Tuesday they would extend production cuts until the end of the year.
November Brent crude continued to jump on Wednesday, at $90.53 per barrel on ICE Futures Europe.
- “[W]hile oil bulls are dancing in the street, the notable price uptick could prove challenging for central banks and financial markets, which were embellishing the current lower inflation groove…if bonds are selling off mainly thanks to higher inflation expectations, that truly will be bad news for markets,” said Stephen Innes, managing partner at SPI Asset Management.
See: Stock-market investors just got reminded that the inflation fight isn’t over
- The increase in energy prices raised concerns that the decline in U.S. inflation this year will stall, forcing central banks to keep borrowing costs higher for longer.
- The 10-year Treasury yield which at one point last Friday was trading below 4.10%, was near 4.3% Wednesday.
- The yield on the policy sensitive 2-year Treasury note jumped 6 basis points to 5.01% from 4.966% on Tuesday.
Mark Newton, head of technical strategy at Fundstrat, said the rise in bond yields may deliver “short term selling pressure for U.S. stocks,” and that Tuesday’s performance may have been notably worse if not for a stoic showing from technology shares.
Key support for the S&P 500 index lies at 4,458, which is near a 38.2% Fibonacci retracement of the rally from mid-August, said Newton. Additional support lies at 4,439, while a break of 4,415 could allow for a more meaningful period of weakness and retest of August lows.
- “At present, I am not expecting a severe decline in September, and expect that any further dips find support into midmonth before rallying back. However, Tuesday’s drop to multiday lows on a closing basis likely does extend a bit lower this week ahead of finding support and turning higher,” said Newton.
In other economic data, the U.S. international trade deficit widened 2% in July to $65 billion, the Commerce Department said Wednesday. Economists surveyed by The Wall Street Journal had predicted the deficit would widen to a seasonally adjusted $68 billion from the initial estimate of a deficit of $65.5 billion in June. The trade gap in June was revised down to $63.7 billion.
See: Last burst of leisure spending leads to modest U.S. growth in summer months, Fed’s Beige Book says
The Federal Reserve’s latest Beige Book shows the economic growth was modest in July and August as consumer spending on tourism was stronger than expected, surging during what most considered “the last stage of pent-up demand for leisure travel from the pandemic era.”
- However, other retail spending continued to slow, especially on non-essential items, the survey said.
- Some Districts suggest consumers may have exhausted their savings and are relying more on borrowing to support spending.
Companies in focus
- Technology stocks underperformed on Wednesday. Shares of Nvidia Corp. fell 3.1%, while Apple Inc. was down 3.9% and Tesla Inc. declined 2.1%.
- AMC Entertainment Holdings Inc. tumbled 33.3% Wednesday toward the lowest price seen since January 2021 after the movie theater operator disclosed an equity distribution agreement in which the company could sell up to 40 million common shares.
- Core & Main Inc. declined 7.7% after the provider of water, storm drainage and fire protection products and services to contractors and municipalities missed fiscal second-quarter profit expectations and trimmed its full-year sales growth outlook, citing “pockets of weakness” in new projects.
- Zscaler Inc. fell 3.2% after the cybersecurity company’s strong quarter and outlook topped Wall Street’s expectations but executives said deals were taking longer to close in the current business environment.
Jamie Chisholm contributed
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The so-called worst month of the year for the stock market is living up to its reputation. Apple, Nvidia, and Tesla are all down big.
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