U.S. stocks fell on Wednesday, with major indexes extending their recent downtrend as investors continued to monitor a rise in bond yields and the implications it could have on equity prices.
Where are the major benchmarks trading?
The Dow Jones Industrial Average DJIA, -0.82% fell 125 points, or 0.5%, to 26,350. The S&P 500 SPX, -1.00% lost 17 points, or 0.6%, to 2,863. The benchmark index is on track for its fifth straight daily drop, which would represent its longest streak of losses since November 2016.
The S&P fell below its 50-day moving average for its fourth straight session. The average is a closely watched technical level that is often seen as a proxy for short-term momentum trends. The benchmark index has dipped under it for three straight sessions, though each time it has rebounded to close above it. Should it end below the level on Wednesday, that would mark the first time it has done so since July, and it could be a catalyst for additional selling.
The Nasdaq Composite Index COMP, -1.75% fell 85 points to 7,653, a decline of 1.1%.
The losses were broad based, with nine of the 11 primary S&P 500 sectors trading lower in early action. The biggest decliners were tech share, which fell 1%. Among notable losers in the industry, Google-parent Alphabet Inc.’s stocks GOOGL, -2.19% GOOG, -2.34% fell, while shares of Microsoft Corp. MSFT, -2.64% lost 1.5%.
What’s driving market activity?
Recent trading has been driven by rising bond yields and interest rates, both of which could signal a new phase in postcrisis markets that have enjoyed a protracted period of ultralow yields.
Higher yields equate to steeper borrowing costs for corporations and investors alike, and have caused a reassessment of equity valuations, already deemed lofty by some measures. On top of that, richer rates of so-called risk-free bonds can attract investors away from equities, which are perceived as comparatively riskier. However, the rising yields are also seen as a reflection of a strong economy, one that has been supported by a number of strong economic data points.
On Wednesday, the yield on the U.S. 10-year Treasury note TMUBMUSD10Y, +0.47% rose 2.2 basis points to 3.23%, hovering near its highest level since 2011.
Traders were also looking ahead to the start of the third-quarter earnings season, which unofficially begins later this week with results from major financial institutions. Broadly speaking, earnings growth is expected to be strong, which could provide an underpinning to equity prices, although there have been some concerns that expectations are too high, which could lead to disappointments.
Read: As stocks sell off, analysts debate whether the recent record was a market top
In the latest economic data, the producer-price index rose 0.2% in September, while the core PPI was up 0.4%.
Charles Evans, the president of the Federal Reserve Bank of Chicago, is scheduled to speak at 10 a.m. ET. The comments will come a day after President Donald Trump reiterated his displeasure with Fed policy, saying the central bank doesn’t have “to go as fast” with raising interest rates. The Fed has raised rates three times this year and it has indicated it would do so again in December.
Late Tuesday, Dallas Federal Reserve President Rob Kaplan said he sees some inflationary pressures building, but that he doesn’t think there will be a sudden spike in prices. He also said he sees a risk of higher oil prices in coming years.
Investors have been monitoring the recent gain in crude-oil prices, which have risen 24% thus far this year and are trading near their highest level since 2014. In an interview with Bloomberg, the executive director of the International Energy Agency warned that oil prices were “entering the red zone.”
In the latest on the trade-policy front, U.S. Treasury Secretary Steven Mnuchin warned Beijing against engaging in a competitive devaluation of the yuan, though he stopped short of accusing China of purposely depressing its currency.
What are market analysts saying?
“Sentiment is mixed, spurred by rising interest rates and a general heightened degree of investment difficulty,” said Terry Sandven, chief equity strategist at U.S. Bank Wealth Management. “Bonds matter, trade policy remains a work in progress and the midterm elections are less than one month away. As interest rates trend higher, bonds become a more viable alternative to equities and valuation multiples tend to become compressed.”
What stocks are in focus?
William Ackman said his activist hedge fund Pershing Square Capital Management LP has built a roughly 1.1% stake in coffee giant Starbucks Corp SBUX, -1.30%
Guggenheim Securities upgraded McDonald’s Corp. MCD, -0.06% citing an “unjustifiable” valuation discount relative to its peers.
Imperva Inc. IMPV, +28.26% announced a deal to be acquired by private-equity firm Thoma Bravo LLC in a deal valued at $2.1 billion. The stock was halted in early trading.
Ionis Pharmaceuticals Inc. IONS, -0.20% after the drug discovery company announced a new collaboration deal with Switzerland-based Roche Holding AG which could be worth up to $759 million for Ionis.
The Wall Street Journal reported that Sears Holdings Corp. SHLD, -34.18% has hired M-III Partners LLC to prepare a bankruptcy filing that could come as soon as this week. The stock fell 20% to 59 cents in premarket trading.
Embattled pizza chain Papa John’s International Inc. PZZA, -1.69% will probably be bought out in the next year, forecasts Kalinowski Equity Research President Mark Kalinowski.
U.S.-listed shares of NIO Inc. NIO, +7.31% rose 6.8% in premarket trading after Baillie Gifford & Co., a major Tesla Inc. TSLA, -4.93% shareholder, has taken an 11.44% stake in Chinese electric-car maker.
Where are other markets trading?
Asian shares were mixed, with Chinese shares trading slightly higher. Most major European indexes trended lower.
Oil prices CLK9, -0.70% were fell 0.4% amid signs that Iran crude exports are falling ahead of reimposed sanctions. Investors were also monitoring any risks to energy infrastructure as Hurricane Michael headed for the Gulf of Mexico.
Gold prices GCZ8, -0.01% were flat, while the U.S. dollar index DXY, -0.07% was down less than 0.1%.
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