Wall Street indexes retreated on Wednesday, led by declines in rate-sensitive sectors as concerns around the timing and the scale of the Federal Reserve’s interest rate cuts pushed Treasury yields higher and pressured risky assets.
In afternoon trading, the Dow Jones Industrial Average plunged 372 points, or 1%, to 38,474, falling to its lowest in nearly one month.
The S&P 500 was down 0.5%, while the Nasdaq slipped 0.2%.
Megacaps Microsoft, Alphabet and Meta dipped between 0.3% and 0.6% as US bond yields across the board rose to near four-week highs after Tuesday’s unexpectedly strong consumer confidence data.
Conflicting expectations on the size and timing of interest rates have kept the market on edge since the start of this year.
Traders began the year expecting cuts by March, but sticky inflation and hawkish comments from central bankers have dampened expectations to a 25 basis points cut only by November or December, as per the CME FedWatch Tool.
“It’s going to be a hard fought battle to get inflation to the 2% target,” said Dylan Kremer, chief investment officer at Certuity.
“But we do see the trend continuing to get closer to the target over the next six to 12 months that could potentially give the Fed some wiggle room for a few interest rate cuts in the back half of the year.”
The tech-heavy Nasdaq retreated after closing above the 17,000 mark for the first time on Tuesday. Small-cap stocks also came under pressure, with the Russell 2000 losing 1.3%
“Folks are saying, ‘what’s the reason for me to be buying right now?’” said Pavlik.
The CBOE Volatility Index, a Wall Street fear gauge, hit its highest levels since May 3.
But the main focus this week is on Friday’s release of April’s Personal Consumption Expenditure data – the Fed’s preferred inflation gauge.
Marathon Oil advanced 8.68% after ConocoPhillips said it would buy the company in an all-stock deal for a little over its $15 billion market value. ConocoPhillips lost 2.9%.
Airline stocks fell, led by American Airlines, which declined 13% after the company cut its second-quarter profit forecast.
Dick’S Sporting Goods jumped 15% after lifting forecasts for annual sales and profit, while Abercrombie & Fitch rose 16% after raising its annual sales growth forecast.
Broadly strong corporate earnings have helped offset rate worries. Nearly 78% of the 480 S&P 500 companies that had reported earnings as of Friday surpassed analyst estimates, according to LSEG data.
