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Nasdaq, S&P, Dow subdued as Wall Street tries to rebound from bruising sell-off

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Markets React To Latest Inflation Report

Michael M. Santiago

On Wednesday, U.S. stocks struggled to find direction, attempting a rebound following a brutal sell-off that witnessed the benchmark S&P 500 (SP500) reaching its lowest close since early June due to concerns over prolonged interest rate hikes.

In the morning, all three major indices opened in positive territory but soon experienced volatility. By mid-day, the tech-heavy Nasdaq Composite (COMP.IND) declined by 0.14% to 13,045.35 points. The S&P 500 (SP500) followed suit, dropping 0.21% to 4,264.42 points, while the Dow (DJI) slipped 0.38% to 33,491.61 points.

Market Sector Performance

Among the eleven S&P sectors, seven were in negative territory, with Utilities and Consumer Discretionary leading the declines. Energy and Industrials, on the other hand, were the top gainers.

Treasury Yields

Treasury yields displayed mixed results, with the 10-year yield (US10Y) rising by 2 basis points to 4.58%, while the more rate-sensitive 2-year yield (US2Y) declined by 2 basis points to 5.11%.

You can find live data on Treasury yields across the curve on the Seeking Alpha bond page.

Market Sentiment and Recent Performance

The recent decline in U.S. equities, including the S&P 500 (SP500) retreating by 4%, has been a cause of concern for investors. The market volatility has been highlighted by Jim Bianco, president of Bianco Research, who noted that the rally this year has been primarily driven by a small group of large technology stocks known as the β€œMagnificent Seven”. He expressed that if these stocks are excluded, the majority of U.S. listed stocks have not performed well, with many underperforming cash.

Factors contributing to the market decline include the Federal Reserve’s unexpectedly hawkish stance on interest rates, as well as the potential for a government shutdown.

Prospects for Short-term Relief

Wednesday’s slightly more positive sentiment was fueled by hopes that the ongoing United Auto Workers (UAW) strike and the possibility of a government shutdown might lead the Federal Reserve to ease its policy tightening. Minneapolis Fed President Neel Kashkari echoed this sentiment, suggesting that a shutdown or an extended strike could slow the economy and alleviate the need for the central bank to use tools to combat inflation.

Economic News and Outlook

August durable goods orders unexpectedly showed a modest increase, with the headline number rising by 0.2% instead of the anticipated 0.5% decline. Core orders also exceeded expectations, rising by 0.4% compared to the projected 0.1% increase.

Tim Quinlan, an economist at Wells Fargo, noted that while there is some relief in the manufacturing sector, the ongoing UAW strike poses potential downside risks in the coming months. He also suggested that it may take some time before conditions become more favorable for new capital investment, and that the Federal Open Market Committee (FOMC) is likely to maintain a restrictive stance on policy to address inflation concerns.

Investor Confidence

In September, State Street’s gauge of investor confidence saw a slight increase.

Stock Movers

NextEra Energy (NEE) experienced the most significant percentage decline on the S&P 500 (SP500) after its affiliate NextEra Energy Partners (NEP) lowered its long-term growth outlook.

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