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Wall Street’s major indices came off session lows but were still firmly in the red in Wednesday late afternoon trading, with all three averages on track to snap a two-day rally. Treasury yields jumped after the latest bond auction results.
Worries over persisting inflation and fears that the Federal Reserve’s ultra-hawkish stance could lead to recession weighed on investor sentiment. Strong earnings reports from big names such as Netflix, Procter & Gamble and Travelers were unable to provide a lift, partly because expectations for quarterly results had already been tempered significantly.
The Nasdaq Composite (COMP.IND) had lost 0.97% to 10,667.55 points, with a surge in shares of Netflix unable to buoy the tech-heavy index. The benchmark S&P 500 (SP500) was 0.78% lower at 3,690.85 points, while the blue-chip Dow (DJI) was down 0.44% at 30,390.02 points.
Rates are climbing after the 20-year bond recorded its highest auction stop on record. The 10-year Treasury yield (US10Y) was up 11 basis points to 4.11% after earlier notching its highest level since 2008. The 2-year yield (US2Y) was up 10 basis points to 4.54% after earlier topping levels not seen since 2007.
Minneapolis Fed president Neel Kashkari at a virtual event said that the central bank would need to see core inflation moderate before any thought of pausing its rate-hike cycle.
“The September CPI data reset the clock for when the FOMC could confidently see disinflation. That raises the odds the string of 75 bp rate hikes continues,” UBS economist Jonathan Pingle said.
“That said, we expect a number of FOMC participants would prefer to slow the pace of rate hikes. We expect that debate to mount into year end,” Pingle added.
The Fed’s Beige Book of regional economic activity released in the afternoon showed that inflation remained elevated, though there was some easing seen in a few districts. Forecasts have become more pessimistic due to demand concerns, and employment and wage growth remained stubbornly resilient even in the wake of rising interest rates.
In earnings news, Netflix shares soared after the streaming giant surpassed projections with its quarterly earnings, revenue and subscribers. Dow 30 components Procter & Gamble and Travelers also topped analysts’ expectations. All eyes will now be on Tesla’s report due after hours.
Among other moves, energy was the only S&P 500 sector trading in the green, as oil prices surged after a selloff in the previous session, despite U.S. President Joe Biden confirming the release of 15M barrels from the SPR. Biden in an address said the release was not politically motivated, and added that oil prices were not falling fast enough. The President also called on oil companies to increase production.
Turning to economic events, September housing starts and permits figures came in mixed. Starts came in at -8.1% M/M to 1.439M compared to the 1.475M expected number. Building permits on the other hand came in at +1.4% M/M to 1.564M versus the forecasted 1.550M.