Wall Street yo-yos to a mixed close as oil and bond markets raise the pressure
Wall Street yo-yoed to a mixed finish Wednesday after rising oil prices and bond yields cranked up the pressure even higher on the stock market.
After taking several U-turns through the day, the Standard & Poor’s 500 inched up by 0.98 of a point, or less than 0.1%, to 4,274.51 and remains near its lowest level since June. The Dow Jones industrial average slipped 68.61 points, or 0.2%, to 33,550.27 after earlier bouncing between a gain of 112 points and a loss of 312, and the Nasdaq composite rose 29.24 points, or 0.2%, to 13,092.85.
September is on track to be the S&P 500’s worst month of the year as the stock market tries to absorb a leap in Treasury yields to heights unseen in more than a decade. High yields mean bonds are paying more in interest, which makes investors less willing to pay high prices for stocks and other riskier investments.
The yield on the 10-year Treasury rose further Wednesday, to 4.61% from 4.55% late Tuesday. That’s up from about 3.50% in May and from just 0.50% early in the pandemic. It has soared as Wall Street increasingly accepts a new normal in which interest rates will stay high for longer.
The Federal Reserve left its key interest rate unchanged for the second time in its last three meetings, a sign that it’s moderating its fight against inflation.
After more than a decade in which the Federal Reserve would often cut rates to help the economy, still-high inflation is now discouraging the Fed from lowering rates quickly. It has already raised its main interest rate to the highest level since 2001, and it indicated last week that it will cut rates by less in 2024 than earlier expected.
Strategists at Bank of America say yields could keep rising. Even if the Fed is close to finished with hiking its overnight interest rate, it could hold the rate there for a long time.
It all has brought an end to the old era of investing, in which the mantra was “There is no alternative” to stocks because bonds were paying such scant yields. With bonds now paying much more and providing real alternatives, stock prices could feel downward pressure for a while.
Even so, the “Fed won’t be overly reactive” to drops in stock prices because the overall economy remains solid, the strategists led by Mark Cabana wrote in a BofA Global Research report.
Despite more than a year of widespread warnings that a recession was near, America’s economy is, if anything, accelerating.
A report on Wednesday said orders for long-lasting manufactured goods were stronger last month than economists expected. It’s the latest signal that the overall economy remains solid despite much higher interest rates.
The upside of such strength means the economy has so far avoided a long-predicted recession. But it also could keep enough upward pressure on inflation to encourage the Fed to keep rates high.
Recent jumps in oil prices have likewise turned up the heat on inflation, and crude climbed further Wednesday.
Benchmark U.S. crude rallied $3.29 to settle at $93.68 per barrel, up from less than $70 in June. It’s threatening to top $100 again for the first time since the summer of 2022. Brent crude, the international standard, also rose.
Crude’s spurt helped stocks in the oil and gas industries to some of the market’s most significant gains. Marathon Oil rose 4.2%, and Devon Energy climbed 4%.
Costco Wholesale was another winner, rising 1.9% after it reported stronger profit for the latest quarter than analysts expected.
On the losing end of Wall Street was NextEra Energy Partners, which fell 20.1%. The partnership cut its growth forecast for how much it will distribute to unit holders, citing the burden of higher interest rates.
Besides high interest rates, a long list of other worries is also tugging at financial markets. The most immediate is the threat of another U.S. government shutdown as Capitol Hill threatens a stalemate that could shut off federal services across the country as soon as this weekend.
Congress must send President Biden spending bills by midnight on Sunday to keep the government open.
Stock prices have managed through past shutdowns relatively well, but conditions may be a little different this time. Economists at Goldman Sachs expect all data reports from the federal government to be postponed during a shutdown. That could complicate things for the Federal Reserve, which has said repeatedly it will make its upcoming decisions on interest rates based on what reports say about inflation and the job market.
Several highly influential reports are supposed to come in the coming weeks. The next monthly jobs report is due on Oct. 6, and two big inflation reports are due the following week.
Other threats looming over Wall Street include shaky economies around the world, a strike by U.S. autoworkers that could put more upward pressure on inflation and a resumption of U.S. student loan repayments that could dent spending by households.
Stock markets in Asia gained ground, and markets in Europe slipped.
Indexes rose 0.8% in Hong Kong and 0.2% in Shanghai even though concerns remain high about a faltering economic recovery and troubles for Chinese property developers, including the heavily indebted Evergrande.
AP writers Matt Ott and Elaine Kurtenbach contributed to this report.
