Early gains for stocks faded on Wall Street Wednesday, sending indexes lower in midmorning trading. A stronger-than-expected report on manufacturing sent Treasury yields sharply higher as traders took it to mean the Federal Reserve will continue moving aggressively to slow down the economy and tame inflation.
Energy stocks rose along with the price of crude oil. Salesforce.com led gains for technology companies after reporting a strong quarter and raising its outlook for the year.
The S&P 500 fell 0.5% while the Dow Jones Industrial Average lost 0.5%. The Nasdaq fell 0.1%. Stocks weakened after a report showed that manufacturing growth in the U.S. accelerated last month, contrary to economists’ expectations for a slight slowdown.
While that’s a good sign for an economy where investors are worried about the possibility of a recession, it also likely keeps the Federal Reserve firmly on its path to hiking interest rates sharply.
The yield on the two-year Treasury, which tends to follow expectations for Fed moves, jumped to nearly 2.66% in the 30 minutes following the report’s release, up from 2.56%. The Fed has already pulled its key short-term interest rate off its record low and has signaled it may continue raising it by double the usual amount at upcoming meetings.
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Such increases are meant to slow the economy in order to stamp out the high inflation sweeping the economy. The risk that is too aggressive a campaign could force the economy into a recession. Even if it doesn’t, higher rates put downward pressure on prices for stocks and other investments.
Wednesday also marks the start of the Fed’s program to pare back some of the trillions of dollars of Treasurys and other bonds that it amassed through the pandemic. Such a move should put upward pressure on longer-term rates.
The 10-year Treasury yield rose to 2.92% from 2.84% just before the report’s release. Salesforce.com., a maker of customer relations software, soared 13% after turning in results that surpassed analysts' forecasts and raising its outlook for the year.
Other big tech companies including Apple and Microsoft were also higher. Oil prices rebounded after declining from nearly $120 per barrel Tuesday when prices surged after the European Union agreed to block the majority of oil imports from Russia because of its invasion of Ukraine. ConocoPhillips rose 2%.
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Prices ultimately fell Tuesday on speculation that the OPEC plus cartel of oil-producing nations might ease production limits and offset lost oil output from Russia. But just hours before U.S. markets opened, benchmark U.S. crude had climbed $1.25 to $115.92 per barrel. Brent crude, the international benchmark, picked up $1.52 to $117.12 per barrel. Source: Miamiherald...