Stocks fell Wednesday, continuing the sluggish start to September, as concerns mounted that the Federal Reserve may not be done hiking interest rates.
The Dow Jones Industrial Average sank 200 points, or nearly 0.6%. The S&P 500 dropped 0.8%, while the Nasdaq Composite shed 1.1%. Treasury yields jumped, weighing on risk assets again. The yield on the 2-year Treasury note was last up more than 6 basis points to trade above the 5% level. Pressured by rates, technology stocks underperformed. The biggest laggards included Nvidia and Tesla, falling about 3% each. Apple dropped roughly 3%, weighing on the Dow. Merck, Johnson & Johnson and Amgen also contributed to the losses, falling more than 1% each. Wednesday’s rise in Treasury yields coincided with stronger-than-expected economic data that fueled some concern over the likelihood of further rate hikes. Recent readings on both the services and manufacturing sectors of the U.S. economy show that prices are moving in the wrong direction. The prices component of the ISM services index rose 2.1 percentage points to 58.9% in August, representing the share of companies reporting increases as well a four-month high. That follows the prices component of the ISM manufacturing index jumping 5.8 points to 48.4%. While readings below 50% represent contraction in the ISM survey, the big one-month jump is a reversal from the recent trend. The prices paid component also rose slightly more than expected, further fueling rate hike fears. Following the services report, the probability that the Federal Reserve will raise interest rates in November increased, last at 49% according to the CME Group. Traders are pricing in a 91% chance that the central bank holds rates steady at its meeting later this month. Earlier in the day, Boston Fed President Susan Collins said the central bank can “proceed cautiously” on more rate hikes, but indicated that “further tightening would be warranted” depending on the data. Stocks are coming off a down session that saw oil prices rise to their highest level since November after Saudi Arabia and Russia extended their voluntary supply cuts. Rising oil prices factor into headline inflation, and, combined with a stronger-than-expected economy, will weigh on the Federal Reserve’s upcoming rate decisions, said Allianz’s Mohamed El-Erian. “They’re not going to hike this month, but they’re going to keep the door open to the possibility of hiking again,” the chief economic advisor told CNBC’s “Squawk Box” on Wednesday.
— CNBC’s Jeff Cox contributed reporting
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