In This Article:
A swift jump in Treasury yields rattled Wall Street on Wednesday, pulling stocks broadly lower at the start of another month in what’s been a turbulent year for the market.
The Standard & Poor's 500 index ended 0.7% lower after an early morning gain quickly gave way to choppy trading. The Dow Jones industrial average slid 0.5% and the Nasdaq composite fell 0.7%.
Stocks began their slide immediately after the release of several reports on the U.S. economy, including one showing manufacturing growth was stronger last month than expected. That bolstered investors’ expectations for the Federal Reserve to continue raising interest rates aggressively to slow the economy in hopes of reining in inflation.
“Investors are worried about the Fed meeting coming up, and because inflation is expected to remain stubbornly elevated the Fed probably won’t get away with front-end loading the rate-tightening cycle and then pausing 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 dropped 176.89 points to 32,813.23, after losing an early gain of 282 points. The Nasdaq slid 86.93 points to 11,994.46. It ended in the red after giving up an early 1.3% gain.
Smaller-company stocks also lost ground. The Russell 2000 index dropped 9.22 points, or 0.5%, to 1,854.82.
Daily market swings have become routine on Wall Street amid worries that too-aggressive rate hikes by the Fed may force the economy into a recession. Even if the Fed can avoid choking off the economy, higher rates put downward pressure on stocks and other investments. High inflation is meanwhile eating into corporate profits, while the war in Ukraine and business-slowing COVID-19 restrictions in China have also weighed on markets.
The Fed has signaled it may continue raising its key short-term interest rate by double the usual amount at upcoming meetings in June and July. Speculation built last week that the Fed may consider a pause at its September meeting, which helped stocks to rise. But such hopes diminished after Wednesday’s manufacturing report from the Institute for Supply Management.
It showed that U.S. manufacturing growth accelerated last month, contrary to economists’ expectations for a slowdown. 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.
After 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. A week ago, the majority of bets was on a lower level, at a range of 2% to 2.25%, according to CME Group.