Wall Street’s main indexes edged down on Wednesday as Treasury yields rose on growing expectations that the Federal Reserve could keep interest rates higher for longer, while mixed earnings from regional banks and weakness in Tesla further dented sentiment.
Tesla Inc dropped 1.6% after the electric-vehicle maker’s sixth price cut this year in the United States, ahead of its first-quarter results.
Netflix Inc slid 3.8% after the video-streaming pioneer issued a downbeat forecast.
Morgan Stanley slipped 0.5% as the Wall Street bank reported a fall in quarterly earnings, a day after rival Goldman Sachs Group Inc posted a 19% drop in profit.
While the start of the earnings season has been largely supportive for equities, investors will closely watch updates from market heavyweights as well as consumer companies for signs of inflation and economic slowdown hurting margins.
“The consensus coming out of corporate America is that we have good times now, but harder times ahead. The big surprise could be an earlier recession than expected,” said Brian Jacobsen, senior investment strategist at Allspring Global Investments.
“What we are expecting is that margins are going to come under further pressure, which could mean more downside risks for markets.”
Mixed economic data recently has fueled bets that the U.S. central bank will hike interest rates by 25 basis points in May, with traders seeing an 83% chance for such a move, as per CME Group’s Fedwatch tool.
The 10-year Treasury yield hit four-week highs, while interest rate sensitive two-year yields scaled a five-week peak, as global yields were dragged upwards by higher-than-expected British inflation and increasing possibility the Fed could keep hiking rates. [US/]
Defensive stocks, including healthcare and utilities, that tend to do well during economic uncertainties rose, limiting broader market declines.
The Fed’s “Beige Book”, a snapshot of the health of the U.S. economy, will be released at 2:00 p.m. ET (1800 GMT), and investors will scrutinize it for the impact of the recent banking crisis on economic activity.
At 11:43 a.m. ET, the Dow Jones Industrial Average was down 98.33 points, or 0.29%, at 33,878.30, the S&P 500 was down 7.73 points, or 0.19%, at 4,147.14, and the Nasdaq Composite was down 23.20 points, or 0.19%, at 12,130.21.
Chipmakers including Micron Technology, Qualcomm Inc and Intel Corp were down between 1% and 2% after European giant ASML Holding NV noted some signs of caution among customers.
The Philadelphia SE Semiconductor index dropped 1.4%.
Earnings from regional banks were mixed, with Citizens Financial Group Inc falling 2.3% after its first-quarter results missed estimates.
Western Alliance Bancorp rallied 15.6% as brokerages remained optimistic on the regional bank following better-than-expected earnings.
Shares of First Republic Bank, Zions Bancorporation and Pacwest Bancorp rose between 3% and 7.3%.
Declining issues outnumbered advancers by a 2.17-to-1 ratio on the NYSE and a 1.60-to-1 ratio on the Nasdaq.
The S&P index recorded 12 new 52-week highs and one new low, while the Nasdaq recorded 35 new highs and 96 new lows.
The dollar strengthened on Wednesday, lifted by rising Treasury yields, though the pound gained against the greenback after British inflation stayed above 10% in March adding to pressure on the Bank of England to keep raising rates.
The dollar index, which tracks the currency against a basket of its peers, was up 0.108% as markets turn more skeptical that the Federal Reserve will cut rates later this year.
The yield on two-year Treasury notes, which are sensitive to expectations for the U.S. central bank’s monetary policy, was up 3.8 basis points to 4.237% after earlier hitting a one-month high.
“This is a temporary reprieve for the dollar,” said Bipan Rai, North America head of FX strategy at CIBC Capital Markets in Toronto.
“We still think that over the medium- to long-term that the dollar is going to continue to come under considerable amounts of pressure. And that’s tied to our view that the Fed is probably going to hike one more time and then that’s it.”
Futures pricing show an 85.4% chance the Fed will hike rates 25 basis points when policymakers conclude a two-day meeting in two weeks, according to CME’s FedWatch Tool. But the likelihood of a rate cut by December has narrowed considerably this week.
Comments