Wall Street falls as the vise tightens from rising yields in the bond market
U.S. stocks slipped Thursday after the clamps tightened on Wall Street from rising yields in the bond market.
The Standard & Poor’s 500 fell 27.34 points, or 0.6%, to 4,349.61. The Dow Jones industrial average dropped 173.73 points, or 0.5%, to 33,631.14, and the Nasdaq composite sank 85.46 points, or 0.6%, to 13,574.22.
The stock market has largely been taking its cue from the bond market recently, and weak results announced in the afternoon for an auction of 30-year Treasury bonds sent yields higher on all kinds of Treasurys. Higher yields can knock down prices for stocks, all else equal, and slow the economy by making borrowing more expensive.
Yields had already been on the rise in the morning after a report showed inflation at the consumer level was a touch higher last month than economists expected. That raises worries about the Federal Reserve keeping its main interest rate high for a long time, as it tries to drive down inflation.
Measures of U.S. inflation in September showed that the pace of price increases is still grinding lower, though at a slow and uneven pace.
The inflation report also had some encouraging nuggets for financial markets underneath the surface. After ignoring prices for food and fuel, which Fed officials see as a better predictor of where inflation is heading, prices that consumers had to pay last month were in line with expectations. They also continued to decelerate from earlier months.
A second economic report from the morning likewise offered both encouragement and caution for financial markets. It said slightly fewer U.S. workers applied for unemployment benefits last week than expected. On one hand, it indicates a job market with few layoffs, which means strength for the overall economy. But it could also be adding fuel to keep upward pressure on inflation.
After the reports, the 10-year Treasury yield rose to 4.7% from 4.56% late Wednesday. The two-year Treasury yield, which more closely tracks expectations for the Fed, climbed to 5.07% from 4.99%.
Yields are still flat to down slightly for the week so far. After jumping last week to their highest levels in more than a decade, yields regressed following speeches that investors saw as hints that the Fed may not raise its main overnight interest rate anymore.
The big jump in the 10-year Treasury yield since the summer has pulled mortgage rates up to their highest levels since the turn of the millennium, and such moves could act to slow the economy without any more interest rate increases by the Fed.
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Nothing in Thursday’s inflation report should sway the Fed one way or the other when it comes to what it will do Nov. 1, when it announces its next move on interest rates, said Seema Shah, chief global strategist at Principal Asset Management. She called the data “reassuringly uneventful.”
“The question around whether or not there will be one more interest rate hike is yet to be answered,” she said.
Rising crude oil prices have put extra pressure on inflation recently, and they were volatile again Thursday. After jumping early in the day, a barrel of benchmark U.S. crude slipped 58 cents to $82.91. Brent crude, the international standard, rose 18 cents to $86 a barrel.
Since their summertime leap and subsequent regression a couple of weeks ago, crude prices have been volatile after the latest fighting in Gaza. The worry is the violence could lead to disruptions in the supply of petroleum.
Higher oil prices add costs across the economy, and airlines are particularly hurt because fuel is one of their biggest expenses.
Delta Air Lines fell 2.3% after it reported stronger profit for the summer than analysts expected. It also said it’s seeing encouraging trends for bookings going into the holiday season.
It’s at the head of a reporting season for S&P 500 companies that could mark a return to profit growth after three straight quarters of declines.
Several financial giants will report on Friday, including Citigroup, JPMorgan Chase and Wells Fargo, along with UnitedHealth Group.
The United Auto Workers said 4,000 Mack Truck workers walked out, adding to labor turmoil that has ensnared all three big Detroit automakers.
Earnings reports from the banks could offer a window into how U.S. households are handling still-high inflation. Resilient spending by those households has been a big factor keeping the U.S. economy out of a long-predicted recession. Bank stocks were mixed ahead of Friday’s reports, with JPMorgan Chase down 0.2% and Wells Fargo up 0.1%.
Ford Motor slumped 2% after the United Auto Workers union significantly escalated its walkout against Detroit automakers. In a surprise move, 8,700 workers left their jobs at a Ford truck plant in Louisville, Ky.
In stock markets abroad, indexes were mixed in Europe after rising sharply in much of Asia.
AP writer Yuri Kageyama contributed to this report.
