US stocks end slightly lower as bond yields hold near multi-decade highs

New York, Sept 29 (Reuters) - US stocks closed slightly lower on Tuesday as government bond yields maintained their near multi-decade highs, coinciding with the anticipation of upcoming inflation and labor market data, alongside scrutiny of Federal Reserve officials' remarks regarding interest rate trajectories. Longer-term US Treasury yields surged, with the 30-year bond reaching 5.6206%, its highest mark since June 2002.

The benchmark 10-year Treasury bond's yield reached 5.293%, marking its peak since June 2007. Stocks managed to recover some losses as yields softened from their peak levels, and short-duration yields dropped on the day as oil prices fell due to forecasts of a recovery in Middle Eastern exports and comments from Federal Reserve Bank of New York President John Williams.

Williams indicated that the US central bank possesses the time to evaluate the data before determining when to implement additional interest rate hikes. The perception of a rate increase of at least 25 basis points by the Fed during the October meeting slipped to 51.5%, according to CME FedWatch, from nearly 70% earlier in the session.

Following Williams' comments, expectations for a Fed rate hike declined to 51.5% from nearly 70%. Oil prices, which had declined from their recent highs at the beginning of the month, rebounded in recent days as hopes of a US-Iran peace deal dwindled. This rise in crude and diesel fuel prices has heightened inflation concerns and contributed to the upward trend of US Treasury yields.

Federal Reserve officials have also suggested further rate hikes may be necessary if price pressures persist after the central bank's 25 basis point rate increase this month. Several crucial economic releases are scheduled for the week, including the Personal Consumption Expenditures Price Index from the Commerce Department on Wednesday, which could influence Fed policy decisions.

Labor market data, including the Friday government payrolls report, will be disclosed throughout the week. Tim Ghriskey, senior portfolio strategist at Ingalls & Snyder in New York, noted that PCE data tomorrow will be critical. The pervasive negativity from consumers due to higher rates, elevated gas prices, and squeezed consumer finances could prompt a sell-off in stocks, particularly in consumer-oriented companies.

Higher yields increase the cost of capital, potentially rendering bonds more attractive than equities and negatively impacting corporate earnings power. The Dow Jones Industrial Average dropped 131.59 points, or 0.26%, to 51,349.92; the S&P 500 declined 12.85 points, or 0.17%, to 7,670.84; and the Nasdaq Composite slipped 22.84 points, or 0.08%, to 26,797.54.

The Labor Department reported in its Job Openings and Labor Turnover Survey that job openings, an indicator of labor demand, fell by 256,000 to 7.079 million in August, below the economists' estimate of 7.225 million. The Conference Board revealed that US consumer confidence plummeted to a near 12-1/2-year low in September, with households anticipating worsening business and labor market conditions in the next six months due to the Iran war and rising interest rates.

While Federal Reserve President John Williams advocated for patience regarding further rate hikes, other policymakers adopted a more hawkish stance, with Federal Reserve Governor Michael Barr predicting additional hikes are likely, and Federal Reserve Bank of Chicago President Austan Goolsbee warning that allowing inflation to remain above the Fed's target for 5-1/2 years is an unwise decision.

AI-related stocks were under the spotlight as Anthropic's initial public offering prospectus revealed the AI lab's rapid growth over the past year and substantial losses. The company aims for a valuation exceeding $2 trillion, potentially setting a precedent for measuring AI leaders on Wall Street. Meta shares rose 3.3%, even after OpenAI announced autonomous agents called "dots" that would pursue user goals across multiple apps, posing a potential threat to Meta's newly launched Muse.

Among other notable movements, used-car retailer CarMax gained 4.7% following a surge in second-quarter profit and revenue. Credit scoring firm Fair Isaac Corp slipped 26.5% after Federal Housing Finance Agency Director Bill Pulte announced that government-sponsored mortgage enterprises Fannie Mae and Freddie Mac will transition to a single pricing grid.

On the NYSE, declining issues outnumbered advancers by a ratio of 1.66-to-1, while on the Nasdaq, the ratio stood at 1.47-to-1. The S&P 500 recorded eight new 52-week highs and 33 new lows, whereas the Nasdaq Composite registered 34 new highs and 244 new lows. The total volume on US exchanges amounted to 16.15 billion shares, compared to an average of 16.87 billion for the full session over the last 20 trading days.