Wall Street yo-yoed to a mixed finish after rising oil prices and bond yields cranked up the pressure even higher on the stock market.
After taking several U-turns through the day, the S&P 500 inched up by less than 0.1 per cent and remains near its lowest level since June. The Dow Jones slipped 0.2 per cent after earlier bouncing between a gain of 112 points and a loss of 312. The Nasdaq composite rose 0.2 per cent.
Wall Street’s September swoon has continued.Credit: AP
The Australian sharemarket is set to slide lower, with futures at 6.59am AEST pointing to a fall of 13 points or 0.2 per cent, at the open. The ASX dipped by 0.1 per cent on Wednesday. The Australian dollar continued to retreat. It was 0.7 per cent lower at 63.52 US cents at 6.50am AEST.
September is on track to be the S&P 500’s worst month of the year as the stock market tries to absorb a leap by Treasury yields to heights unseen in more than a decade. High yields mean bonds are paying more in interest, which makes investors less willing to pay high prices for stocks and other riskier investments.
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The yield on the 10-year Treasury rose further Wednesday, to 4.61 per cent from 4.55 per cent. That’s up from about 3.50 per cent in May and from just 0.50 per cent early in the pandemic. It’s soared as Wall Street increasingly accepts a new normal where interest rates will stay high for longer.
After more than a decade where the Federal Reserve would quickly cut rates in order to help the economy, still-high inflation is now discouraging the Fed from lowering rates. Its main interest rate is already at its highest level since 2001, and the Fed indicated last week it will cut rates in 2024 by less than earlier expected.
Strategists at Bank of America say yields could keep rising. Even if the Fed is close to done with hiking its overnight interest rate, it could hold the rate there for a long time.
It’s all brought an end to the old era of investing, where the mantra was “There Is No Alternative” to stocks because bonds were paying such scant yields. With bonds now paying much more and providing real alternatives, stock prices could feel downward pressure for a while.
Even so, the “Fed won’t be overly reactive” to drops in stock prices because the overall economy remains solid, the strategists led by Mark Cabana wrote in a BofA Global Research report.
A report on Wednesday said orders for long-lasting manufactured goods were stronger last month than economists expected. It’s the latest signal that the overall economy remains solid despite much higher interest rates.
The upside of such strength means the economy has avoided a long-predicted recession. But it could also keep enough upward pressure on inflation to encourage the Fed to keep rates high.
Recent jumps in oil prices have likewise turned up the heat on inflation, and crude climbed further Wednesday.
Benchmark US crude rallied $US3.29 to settle at $US93.68 per barrel, up from less than $US70 in June. It’s threatening to top $US100 again for the first time since the summer of 2022. Brent crude, the international standard, also rose.
Crude’s spurt helped stocks in the oil and gas industries to some of the market’s most significant gains. Marathon Oil rose 4.2 per cent, and Devon Energy climbed 4 per cent
Costco Wholesale was another winner, rising 1.9 per cent after it reported stronger profit for the latest quarter than analysts expected.
On the losing end of Wall Street was NextEra Energy Partners, which fell 20.1 per cent. The partnership cut its growth forecast for how much it will distribute to unit holders, citing the burden of higher interest rates.
Besides high interest rates, a long list of other worries is also tugging at financial markets. The most immediate is the threat of another US government shutdown as Capitol Hill threatens a stalemate that could shut off federal services across the country as soon as this weekend.
Stock prices have managed through past shutdowns relatively well, but conditions may be a little different this time. Economists at Goldman Sachs expect all data reports from the federal government to be postponed during a shutdown. That could complicate things for the Federal Reserve, which has said repeatedly it will make its upcoming decisions on interest rates based on what reports say about inflation and the job market.
Several highly influential reports are supposed to come in the coming weeks. The next monthly jobs report is due on Oct. 6, and two big inflation reports are due the following week.
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Other threats looming over Wall Street include shaky economies around the world, a strike by US auto workers that could put more upward pressure on inflation and a resumption of US student-loan repayments that could dent spending by households.
Stock markets in Asia gained ground, and markets in Europe slipped.
Indexes rose 0.8 per cent in Hong Kong and 0.2 per cent in Shanghai even though concerns remain high about a faltering economic recovery and troubles for Chinese property developers, including the heavily indebted Evergrande.
