Stocks tumbled on Wednesday amid further gains in Treasury yields and concern over the timing and scale of possible interest rate cuts from the Federal Reserve.
The Dow Jones Industrial Average plunged 411.32 points, or 1.1%, to 38,441.54, falling to its lowest in nearly one month.
The S&P 500 and the Nasdaq slipped 0.6%. The yield on the benchmark 10-year US Treasury note hit four-week highs at 4.6%, extending Tuesday’s gains, after weak debt auctions.
The Dow fell more than 350 points on Wednesday to fall to its lowest level in more than a month. Getty Images“You continue to see this rise in bond yields, which is pressuring equities… It’s a continuation of this unstable, uneven recovery,” said James Abate, fund manager of the Centre American Select Equity fund.
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.”
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. Getty ImagesThe 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 8.4% after ConocoPhillips said it would buy the company in an all-stock deal for a little over its $15 billion market value. ConocoPhillips lost 3.1%.
Airline stocks fell, led by American Airlines, which declined 14% after the company cut its second-quarter profit forecast.
Dick’s Sporting Goods jumped 16% 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.
