By Stan Choe
September 28, 2023 — 5.16am
Wall Street continued losing ground as stocks continued falling amid already sharp losses for September so far.
The S&P 500 fell 0.7 per cent in afternoon trading. It’s coming off a 1.5 per cent tumble from the day before that dragged it to its lowest level since June.
Wall Street’s September swoon has continued.Credit: AP
The Dow Jones was down 0.8 per cent and the Nasdaq composite was 0.6 per cent lower. The Australian sharemarket is set to slide lower, with futures at 4.58am AEST pointing to a fall of 17 points or 0.2 per cent, at the open. The ASX dipped by 0.1 per cent on Wednesday.
Pressure on stocks continued from the bond market. The yield on the 10-year Treasury rose to 4.62 per cent from 4.55 per cent late Tuesday.
It’s been generally charging higher as traders accept a new normal where interest rates will stay high for longer. High yields mean bonds are paying more in interest, which makes investors less willing to pay high prices for stocks and other riskier investments.
After more than a decade where the Federal Reserve would often cut rates in order to help the economy, still-high inflation is now discouraging the Fed from lowering rates quickly. It’s already raised its main interest rate to the highest level since 2001, and it indicated last week it will cut rates by less in 2024 than earlier expected.
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Strategists at Bank of America say yields could keep rising further. Even if the Fed is close to done with hiking its overnight interest rate, it could hold the rate there for a long time. That in turn would push up medium- and longer-term yields.
It all has 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 so far avoided a long-predicted recession. But it also could 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 3.5 per cent to $US93.54 per barrel, up from less than $US70 in June. Brent crude, the international standard, added 2.1 per cent to $US94.34 per barrel.
The spurt helped stocks in the oil and gas industries to some of the market’s most significant gains. Halliburton, an oilfield services provider, climbed 2.8 per cent, and Marathon Oil rose 4.7 per cent.
Costco Wholesale was another winner, rising 1.1 per cent after it reported stronger profit for the latest quarter than analysts expected.
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On the losing end of Wall Street was NextEra Energy Partners, which fell 17.2 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.
A shutdown would furlough millions of federal employees, leave the military without pay, disrupt air travel and cut off vital safety net services. 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 the 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.
The next monthly jobs report is due on October 6, and two big inflation reports are due the following week.
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.
AP
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