NEW YORK (AP) – A rapid jump in government bond yields rocked Wall Street on Wednesday, pulling stocks significantly lower at the start of another month in a turbulent year for the market.
The S&P 500 ended 0.7% lower after the early morning increase quickly gave way to fragmented trade. The Dow Jones Industrial Average was down 0.5% and the Nasdaq was down 0.7%.
Shares began to decline immediately after the release of several reports on the US economy, including one showing that output growth was stronger last month than expected. This has boosted investors’ expectations that the Federal Reserve will continue to aggressively raise interest rates to slow the economy in hopes of curbing inflation.
“Investors are worried about the upcoming Fed meeting, and as inflation is expected to remain high, the Fed is unlikely to miss the initial load of the interest tightening cycle and then halt the pause in the fall,” said Sam Stoval, chief executive. investment strategist at CFRA.
The S&P 500 fell 30.92 points to 4,101.23 points. The Dow fell 176.89 points to 32,813.23 after losing an early 282-point gain. The Nasdaq index fell 86.93 points to 11,994.46 points. He also finished in the red after giving up an early profit of 1.3%.
Shares of smaller companies also lost ground. The Russell 2000 index fell 9.22 points, or 0.5%, to 1,854.82.
Daily market fluctuations have become routine on Wall Street amid fears that too aggressive a rise in Fed interest rates could force the economy into recession. Even if it can avoid suffocating the economy, higher interest rates are putting downward pressure on stocks and other investments. Meanwhile, high inflation is eating away at corporate profits, while the war in Ukraine and the slowdown in business, restrictions on COVID-19 in China have also weighed heavily on markets.
The Fed has signaled that it may continue to raise its key short-term interest rate by doubling the usual amount at upcoming meetings in June and July. There was speculation last week that the Fed might consider a break at its September meeting, which helped the stock rise. But those hopes were dashed after Wednesday’s production report from the Institute for Supply Management.
He showed that the growth of production in the United States accelerated last month, contrary to the expectations of economists for a slowdown. A separate report says the number of job vacancies across the economy was slightly lower in April, but remains much higher at 11.4 million than the number of unemployed.
According to reports, traders are now betting on a 60% chance the Fed will raise its base short-term interest rate to a range of 2.25% to 2.50% at its meeting in September. A week ago, most bets were at a lower level, ranging from 2% to 2.25%, according to the CME Group.
The profitability of the two-year treasury, which tends to follow the expectations of the Fed’s movements, jumped with those expectations. It rose to 2.66%, from 2.56% just before the publication of the production report.
Wednesday also marks the beginning of the Fed’s program to recover some of the trillions of dollars of government securities and other bonds it accumulated during the pandemic. Such a move should put pressure on raising long-term interest rates.
Yields on 10-year bonds rose to 2.92% from 2.84% just before the report was published.
Airlines and other travel-related stocks were among the biggest losers on Wall Street on Wednesday amid worries that inflation is cutting profits.
Delta Air Lines, for example, said it expects to see fuel costs of $ 3.60 to $ 3.70 a gallon this quarter, compared to its previous forecast of up to $ 3.35. Even outside of fuel, Delta said costs could rise to 22% above 2019 levels on a spot basis. This is more than an earlier forecast of 17%
Shares of Delta fell 5.2%, although he also said that revenue trends are intensifying. As passengers pay higher fares, Delta said it could get a key measure of revenue completely back to 2019 levels.
Norwegian Cruise Line and United Airlines lost 4.5% each.
On the winning side were energy reserves, which rose with the price of crude oil. ConocoPhillips rose 3 percent and Exxon Mobil rose 1.9 percent as a barrel of U.S. crude oil benchmark rose 0.5 percent to $ 115.26. Brent crude oil, the international standard, added 0.6% to $ 116.29.
The biggest profit in the S&P 500 came from Salesforce.com, which reported stronger profit for the last quarter than analysts expected, and raised its forecast for the year. His shares rose 9.9%.
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Veiga reported from Los Angeles.
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