Wall Street ends lower after record highs as Treasury yields climb

On Wednesday, the stock market experienced a downturn as long-term US Treasury yields continued their rise, reigniting concerns about inflation and increasing national debt. The three major US stock indexes - Dow Jones Industrial Average, S&P 500, and Nasdaq Composite - all saw modest declines, with the S&P 500 and Dow snapping four-day winning streaks.

The Nasdaq recorded its first down day in six months. Small-cap stocks underperformed, dropping 1.3%. Brent crude prices surged above $100 per barrel, and long-term Treasury yields hit a 24-year high. The geopolitical tensions surrounding Iran further boosted oil prices, fueling inflation worries and heightening the prospect of a protracted period of central bank rate increases.

Investors were seeking relief in oil prices, hoping this would ease pressure on interest rates and, in turn, benefit the stock market. Thomas Martin, a senior portfolio manager at GLOBALT in Atlanta, commented that the third quarter often marks a weaker period, and the market had just avoided a correction. However, stocks retreated after crude prices dipped due to an International Energy Agency's decision to accelerate the release of oil stocks, prioritizing diesel.

Minutes from the Federal Reserve's September monetary policy meeting, where the central bank unanimously approved its first interest rate hike since July 2023, revealed disagreements over the reasons for the increase. Some participants believed the hike was essential to prevent energy price shocks from negatively impacting the economy, while others argued it was necessary to curb demand-driven inflation.

Market expectations of a second consecutive rate hike at the October meeting dropped to 17.2%, down from 37.6% a week earlier. The market's sentiment is expected to fluctuate as new data emerges. The Dow Jones Industrial Average closed at 51,180.17, down 0.66% from its previous close; the S&P 500 fell to 7,801.75, a 0.22% reduction; and the Nasdaq Composite dropped to 27,538.69, a 0.22% decline.

The industrials sector experienced the most significant drop among the S&P 500's 11 sectors, while healthcare stocks led the gainers. Following the steady increase in benchmark Treasury yields, the 30-year fixed mortgage rate reached near three-year highs, causing a decline in housing and homebuilding stocks. Chip stocks, which had surged over 80% this year, were hit with a 1.2% drop.

SpaceX, Elon Musk's aerospace company, lost 2.5% after reports emerged that the firm was seeking $40 billion in financing to procure Nvidia chips. Next week, the third-quarter earnings reporting season is anticipated to commence, with major financial institutions expected to release their results. Investors will closely examine the impact of substantial investments in AI technology and assess the health of the US consumer amid rising inflationary pressures.

Analysts anticipate S&P 500 earnings growth of 30.6% year-over-year for the July-through-September period, according to LSEG. On the NYSE, declining issues outnumbered advancers by a ratio of 3.34-to-1, with 115 new highs and 497 new lows. On the Nasdaq, 1,421 stocks rose, while 3,371 fell, with declining issues surpassing advancers by a ratio of 2.37-to-1.

The S&P 500 recorded 9 new 52-week highs and 12 new lows, while the Nasdaq Composite achieved 32 new highs and 250 new lows. Overall, US exchanges recorded a volume of 16.21 billion shares, compared to the 17.57 billion average over the previous 20 trading days.