US stocks fell on Wednesday, weighed down by rising Treasury yields and the possibility that the Federal Reserve will delay interest rate cuts. The prospect of higher interest rates for longer also sent crude oil prices sharply lower ahead of an OPEC+ production meeting.
At the close, the Dow Jones index “evaporated” 411.32 points, equivalent to a decrease of 1.06%, to 38,441.54 points. The S&P 500 index fell 0.74%, to 5,266.95 points, marking the first decline in the past 3 sessions. The Nasdaq index recorded a softer decline than the other two metrics, losing 0.58%, to 16,920.58 points.
A rally in chipmaker Nvidia helped limit losses on the Nasdaq, which fell as much as 2.6% at one point but ended the session up 0.8%. The giant stock has been on a tear since Wednesday, rising nearly 21% after reporting earnings that beat expectations.
The decline was broad-based, with all 11 major sectors of the S&P 500 closing in the red. More than 440 of the 500 stocks in the index fell. Of the 30 Dow Jones index members, 27 stocks fell.
The main driver of the sell-off was the yield on the benchmark 10-year Treasury note, which rose for a second straight session to 4.6%. The yield on the note broke through a key level of investor concern at 4.5% on Tuesday after a Treasury auction drew muted investor demand.
Rising yields could reduce the valuations investors are willing to pay for stocks and push up borrowing costs, hurting consumer spending and making treasury bills and money market funds more attractive than stocks.
In addition, a survey by the Conference Board showed that US consumer confidence unexpectedly rose in May after declining for 23 consecutive months. This increase in consumer confidence was due to optimism about the labor market. The good news is bad news, as signs of a strong US economy strengthen the case for the Fed to maintain current interest rates for longer to deal with price pressures. The prospect of higher interest rates for longer is bad for stocks and many commodities. The Conference Board survey also showed that consumers continue to worry about persistently high inflation, while many households expect interest rates to remain high for the next year.
Traders now see little hope that the Fed will start cutting rates in September. Instead, they see the first rate cut coming in November, and the Fed will cut rates just once this year. According to data from the FedWatch Tool, the market is betting 54% that the Fed will leave rates unchanged at its September meeting.
“Interest rates are the big story today,” LPL Financial chief market strategist Adam Turnquist told CNBC, noting that the 10-year and 2-year Treasury yields have reached “uncomfortable levels” and “have many investors feeling uneasy.”
Still, with gains to start the month, the market is on track to cap a strong month. The S&P 500 is up 4.61% for the month, while the Dow is up about 1.71% and the Nasdaq is up more than 81%. “Investors are asking, ‘What’s this summer going to bring? Is the macro environment really changing?’ This year, things have moved very quickly. Some things were expected to happen, and now the likelihood of those things happening is decreasing,” said Shelby McFaddin, an analyst at Motley Fool Asset Management.
Brent crude futures in London fell $0.62 a barrel, or $0.741 a barrel, to $83.60 a barrel. WTI crude futures in New York fell $0.60 a barrel, or $0.751 a barrel, to $79.23 a barrel. The possibility of the Fed keeping interest rates higher for longer has put downward pressure on oil prices. Investors are also concerned about signs of weak gasoline demand in the US.
Analysts expect U.S. commercial gasoline inventories to rise by 1 million barrels in the week ending May 24, ahead of Monday’s Memorial Day holiday, which is considered the start of the annual peak driving season in the U.S. Last year, U.S. commercial gasoline inventories fell by 200,000 barrels in the same period. Over the five-year period from 2019 to 2023, the average decline has been 200,000 barrels.
Next week, oil prices may be influenced by the outcome of this Sunday's production meeting of OPEC+, an alliance between the Organization of the Petroleum Exporting Countries (OPEC) and some non-members including Russia. According to sources familiar with the meeting, OPEC+ will maintain its plan to voluntarily reduce production by 2.2 million barrels per day until the end of this year.
Source: VnEconomy
