Wall Street edges lower ending strongest two-day rally since 2020.
Treasury yields and the dollar rose due to signs that the US economy was still strong.
Hopes that the economy might be slowing enough to convince central bank officials to hold off on significant hikes were shattered on Wednesday. (Closed): US stocks and bond prices closed higher on Wednesday after strong economic and labor market data.
The strongest two-day rally in US stocks since 2020 came to an end on Wednesday, while Treasury yields and the dollar rose due to signs that the US economy was still strong and that Federal Reserve officials were determined to increase interest rates.
Early in the week, there were some signs that the labor market was softening; however, new data showing that it is still hot backed up ongoing hawkish comments from Fed officials and darkened expectations for a change in course from the Fed’s steady stream of rate hikes to control inflation.
Even if Wall Street’s day’s worst losses were minimized, it still closed lower. The S&P 500 lost 0.20 percent, the Nasdaq Composite fell 0.25 percent, and the Dow Jones Industrial Average dropped by 0.14 percent.
The MSCI world equity index, which tracks shares in 45 nations, was last down 0.12 percent.
The US Treasury yields and the dollar each regained lost ground over the two previous days. Average 10-year Us treasury yield increased by 14 basis points to 3.74 percent.
The dollar index, which measures the value of a single currency against a basket of six others, rose 1.03 percent to 111.19.
On a variety of fronts, hopes that the economy might be slowing enough to convince central bank officials to hold off on significant hikes were shattered on Wednesday.
While the ADP National Employment reported that private employment has been rising by more than estimated in September, the Institute for Supply Management reported the service sector shrank less than expected in September and employment ticked up. The Bank of New Zealand decided to keep a substantial rate hike.
All of these factors suggested that the economy has not yet slowed down enough in response to rate hikes for central banks to alter their approach.
Despite “glimmers of hope” in recent data, Atlanta Fed President Raphael Bostic said the Fed’s fight against inflation is likely “still in early days.”
The stock and bond rally of the last few days was driven by weaker economic and labor market data, as CNBC quoted Jacob Manoukian, US head of investment strategy at JPMorgan Private Bank as saying. “Today, stocks and bonds are both selling off after a more hawkish policy decision from New Zealand and stronger economic data from the US,” added Manoukian.
According to Manoukian, it’s hard to read too much into day to day price moves when markets are this skittish, but “the broad driver of markets for the rest period of this third quarter will probably be the trajectory of policy rates.”
The US Labor Department will publish monthly jobs statistics on Friday, providing investors and policymakers more information on the situation of the labor market.
