Stocks slide as strong economic data raises rate worries

Stocks slide as strong economic data raises rate worries

NEW York — A rapid jump in Treasury yields rattled Wall Street on Wednesday, weighing heavily on stock indexes at the beginning of another month in a turbulent year.

The S&P 500 was 0.3% less in afternoon trading after fluctuating between a gain and a loss in choppy trades. Stocks fell immediately after several reports about the U.S. economy were released, including one that showed manufacturing growth was stronger than expected. Investors now expect the Federal Reserve to keep raising interest rates aggressively to slow down the economy and rein in inflation.

The Dow Jones Industrial Average was down 112 points, or 0.3%, at 32,881, as of 2: 55 p.m. Eastern time, after losing an early gain of 282 points. After giving up an initial gain of 1.3%, the Nasdaq composite fell 0.2%.

Such swings are common on Wall Street, amid concerns that aggressive rate hikes by Fed could lead to a recession. Higher rates can put downward pressure on stocks, and other investments, even if the Fed is able to avoid choking off an economy. High inflation is meanwhile eating into corporate profits, while the war in Ukraine and business-slowing, anti-COVID-19 restrictions in China have also weighed on markets. The Fed indicated that it may increase its key short-term rate by twice the usual amount at its upcoming meetings. Last week’s stock market rises led to speculation that the Fed might consider a pause at its September meeting. These hopes were dashed by Wednesday’s manufacturing report from Institute for Supply Management.

It showed that the U.S. manufacturing sector grew faster than expected, contrary to economists’ expectations. A separate report said that the number of job openings across the economy ticked a bit lower in April but remains much higher, at 11.4 million, than the number of unemployed people.

Following the reports, traders are now betting on a 60% probability that the Fed will raise its benchmark short-term rate to a range of 2. 25% to 2. 50% at its September meeting. At a range of 2% up to 2., the majority of bets were placed a week ago. 25%, according to CME Group.

The yield on the Treasury’s two-year note, which tends towards following Fed moves, increased with these expectations. It reached 2. 65%, up from 2. 56% just before the manufacturing report’s release.

Wednesday marks the beginning of the Fed’s program of reducing the trillions of dollars in Treasurys and other bonds it has accumulated through the pandemic. This move should increase pressure on long-term rates.

The 10-year Treasury yield rose to 2. 93% was 2. 84% shortly before the report’s publication.

Stocks of travel-related companies and airlines were among the biggest losers on Wall Street Wednesday amid concerns that inflation is reducing their earnings.

Delta Air Lines said that it expects to see fuel prices of $3. 60 to $3. 70 per gallon this quarter, up from its prior forecast of up to $3.35. Even outside of fuel, Delta said expenses could soar up to 22% above 2019 levels on a per-seat basis. That’s up from an earlier forecast of 17%,

Delta’s stock fell 4.8% even though it also said revenue trends are strengthening. Delta stated that it may be able to get a key revenue measure back to 2019 levels, despite passengers paying higher fares.

Norwegian Cruise Line lost 4.2% and United Airlines lost 4.3%.

The winners were energy stocks which increased with the price for crude oil. ConocoPhillips gained 3.4%, and Exxon Mobil rose 1.9% as a barrel of benchmark U.S. crude rose 0.5% to settle at $115.26. Brent crude, the international standard, added 0.6% to $116.29.

Salesforce.com reported a stronger profit in the S&P 500 than analysts expected, and raised its forecast for next year. Its stock rose 10.9%.

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Veiga reported from Los Angeles.

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