Stocks fall as strong economic data raises rate concerns – Daily Freeman

By STAN CHOE

NEW YORK (AP) — A rapid jump in Treasury yields rattles Wall Street on Wednesday, sending stock indexes down about 1% at the start of another month in a turbulent year.

The S&P 500 was down 0.9% in afternoon trade after an early morning gain quickly faded. Stocks began their slide immediately after the release of several reports on the US economy, including one showing manufacturing growth was stronger than expected last month. This bolstered investor expectations that the Federal Reserve would continue to aggressively raise interest rates to slow the economy in hopes of bringing inflation under control.

The Dow Jones Industrial Average was down 325 points, or 1%, at 32,664 as of 12:15 a.m. EST after shedding an early gain of 282 points. The Nasdaq composite was down 1.2% after giving up an early 1.3% gain.

Such swings have become routine on Wall Street amid fears that overly aggressive rate hikes from the Fed could push the economy into a recession. While this may avoid stifling the economy, higher rates still put downward pressure on stocks and other investments. Meanwhile, high inflation is eating away at corporate earnings, while the war in Ukraine and anti-COVID-19 restrictions slowing business in China have also weighed on markets.

The Fed has signaled that it may continue to raise its main short-term interest rate to double the usual amount in future meetings. Last week, speculation mounted that the Fed might consider a pause at its September meeting, which helped stocks rise. But those hopes dwindled after Wednesday’s manufacturing report from the Institute for Supply Management.

It showed that growth in the US manufacturing sector accelerated last month, contrary to economists’ expectations of a slowdown. A separate report said the number of job vacancies across the economy fell slightly in April, but remained much higher, at 11.4 million, than the number of unemployed.

Following the reports, traders are now betting on a 60% chance that the Fed will raise its benchmark short-term rate to a range of 2.25% to 2.50% at its September meeting. A week ago, the majority of bets were at a lower level, in the range of 2% to 2.25%, according to CME Group.

The two-year Treasury yield, which tends to track expectations for Fed moves, jumped along with those expectations. It rose to 2.66% from 2.56% just before the release of the manufacturing report.

Wednesday also marks the start of the Fed’s program to cut some of the trillions of dollars in Treasuries and other bonds it has amassed during the pandemic. Such a decision should put upward pressure on longer-term rates.

The 10-year Treasury yield rose to 2.93% from 2.84% just before the report was released.

Airlines and shares of other travel-related companies were among the biggest losers on Wall Street on Wednesday, on fears that inflation could squeeze their earnings.

Delta Air Lines, for example, said it expects to see fuel costs of $3.60 to $3.70 per gallon this quarter, up from its previous forecast of up to $3.35. $. Even aside from fuel, Delta said spending could climb up to 22% above 2019 levels per seat. This is up from an earlier forecast of 17%,

Delta’s stock fell 5.1% even though it also said earnings trends were strengthening. With passengers paying higher fares, Delta said it could get a key revenue metric fully reduced to 2019 levels.

Norwegian Cruise Line fell 6.1% and United Airlines lost 5.4%.

On the winning side were energy stocks, which rose along with the price of crude oil. ConocoPhillips gained 3.2% and Exxon Mobil rose 2% as benchmark U.S. crude rose 1.8% to $116.69 a barrel. Brent crude, the international standard, added 1.9% to $117.76.

The biggest gain for the S&P 500 came from Salesforce.com, which reported higher earnings for the last quarter than analysts expected and raised its forecast for the year. Its stock rose 9.9%.

Garland K. Long