Stocks Close Lower After Two-Day Rally

U.S. stock indexes fell on Wednesday after giving up late-session gains.

The S&P 500 fell 7.65 points, or 0.2%, to 3783.28, the tech-focused Nasdaq Composite lost 27.77 points, or 0.2%, to 11148.64 and the Dow Jones Industrial Average declined 42.45 points, or 0.1%, to 30273.87. All indexes snapped a two-day winning streak.

Wednesday’s decline continues a weekslong selloff in stocks. The market has experienced volatility as the Federal Reserve increased interest rates this year in an effort to tame elevated inflation. 

Economic data released on Wednesday showed signs of a strong economy, strengthening the belief that a Fed pivot is unlikely and fueling the market dip. ADP’s employment report showed that the U.S. private sector added 208,000 jobs in September, and ISM Services Index noted that growth in the U.S. service sector held up better than expected in September. In addition, data showed that the U.S. trade deficit narrowed to $67.4 billion in August from a revised $70.5 billion one month earlier.

Out of the 11 sectors within the S&P 500, eight sectors declined, with the energy, information technology and healthcare sectors seeing gains.

Stocks sold off for most of the trading day but quickly rebounded in late afternoon trading before giving up gains again.

On Monday and Tuesday, the indexes posted their biggest two-day gains in more than two years. Investors cheered what they saw as early signs that the Fed’s efforts were working. The World Trade Organization forecasted that global trade in goods would slow more sharply than previously expected next year, possibly easing inflationary pressures but raising the risk of a global recession. Data released Tuesday showed that U.S. job openings fell by 10% in August and layoffs rose slightly. Some investors hoped a slowdown could reduce inflation and ease pressure on the Fed to keep lifting rates.

On Wednesday, however, the major indexes turned negative.

Over the summer, investor bets that the Fed would slow down rate increases boosted stocks and bond prices. The summer rally abruptly came to a halt in August when Fed Chair Jerome Powell reiterated the Fed’s commitment to tame inflation.

Kevin Flanagan, head of fixed-income strategy at WisdomTree, said the big question is whether the Fed wants to keep pedal to the metal with rates or let up a little bit with the potential hike in November. “We can kinda laugh about 50 basis points, ‘Woohoo, they’re really slowing down,’ but it’s still 50bps of a move.”

The most recent rate increase was 75 basis points, or 0.75 percentage point, which sparked further losses in stocks and bonds.

Investors have been left with few places to hide from the year’s volatility, especially as safe-haven assets have declined with the greater market.

“When it’s raining outside you’re gonna get wet,” said Dave Grecsek, managing director in investment strategy and research at Aspiriant. “We’re telling investors take a rain jacket and umbrella outside.”

Mr. Grecsek said he is holding high-quality stocks in the sectors related to healthcare and consumer staples. He also added that long-duration government bonds are becoming attractive again because of the higher yields.

Twitter shares fell 70 cents, or 1.3%, to $51.30 on Wednesday. Shares surged 22% Tuesday after Elon Musk offered to close his $44 billion deal to buy the social-media company on the terms he originally agreed to.

In energy markets, Brent crude, the international benchmark for oil prices, edged up $1.57 a barrel, or 1.7%, to $93.37, after the Organization of the Petroleum Exporting Countries on Wednesday agreed to slash two million barrels of oil a day. Higher oil prices create further pressure on the economy since gasoline is the biggest contributor to rising consumer prices.

Energy stocks rallied. Exxon Mobil gained $3.85, or 4%, to $99.12; Halliburton added $1.12, or 4%, to $29.24; and Phillips 66 advanced $2.25, or 2.5%, to $92.61.

In bond markets, the yield on the benchmark 10-year Treasury note rose to 3.757% from 3.616% Tuesday. Yields and prices move inversely. Higher yields this year have dragged down technology stocks, which usually have lofty multiples.

“If there’s more pressure, it’s going to come in the highest multiple stocks. There’s no reason to think that’s going to change—Fed pivot or not. Higher multiple stocks still have more corrections to go,” said Jeremy Schwartz, global chief investment officer at WisdomTree.

The WSJ Dollar Index, which measures the dollar against a basket of other currencies, gained on Wednesday.

Overseas, the pan-continental Stoxx Europe 600 fell by 1%. 

In Asia, major indexes closed with gains. Hong Kong’s Hang Seng Index climbed 5.9%, marking its biggest one-day gain since March, as investors played catch-up with the rally in global stock markets after a local holiday on Tuesday. Markets in mainland China remained closed for a holiday. 

Meanwhile, Japan’s Nikkei 225 rose 0.5%, and South Korea’s Kospi added 0.3%.

Corrections & Amplifications
Dave Grecsek is a managing director in investment strategy and research at Aspiriant. An earlier version of this article misspelled his last name as Grecesk. (Corrected on Oct. 5).

Source By: The Wall Street Journal

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