Key facts
- Wall Street ended lower on Wednesday, pulled down by Alphabet and Amazon.
- Treasury yields climbed, with two-year yields touching their highest since 2024 and 10-year yields hitting their highest since 2007.
- Oil prices rose almost 4% and the S&P 500 energy sector index rallied.
- US business activity reached a more than five-year high in September.
- Federal Reserve Governor Michael Barr indicated further interest rate hikes are likely needed as inflation remains above the Fed's 2% target.
- Traders are pricing in a 71% chance the Fed will raise interest rates at its next policy meeting.
Wall Street equities closed lower on Wednesday, with major indices pulled down by declines in Alphabet and Amazon. The broader market sentiment was affected by rising Treasury yields and an increase in oil prices, which gained nearly 4% following comments from Iranian President Masoud Pezeshkian at the UN. Pezeshkian stated that Tehran would never surrender to US pressure, a day after US President Donald Trump issued a warning to Iran.
A survey indicating that US business activity accelerated to a more than five-year high in September contributed to higher government bond yields. This surge in yields has amplified expectations that the Federal Reserve may implement further interest rate hikes at its upcoming October meeting. Yields on two-year Treasuries reached their highest levels since 2024, while 10-year Treasury yields hit their highest since 2007.
Lauren Cassidy, chief investment officer at Founders 100 ETF in Dallas, commented that the stock market desires a resolution to the Middle East conflict. She added that without such a resolution, higher rates for longer would persist, continuing to pressure the equity market.
In other corporate news, Meta Platforms saw gains following positive reception of its AI assistant, Muse. However, Alphabet, Google's parent company, and Amazon, which has blocked Muse from its shopping platform, both dropped. The PHLX chip index also slid, with Nvidia experiencing a decline. Expedia and Airbnb also registered losses. The Nasdaq had previously closed at record highs in the preceding two sessions, driven by optimism surrounding AI-related companies. The S&P 500 remains less than 2% below its record high close on August 13.
Markets also considered comments from Federal Reserve Governor Michael Barr, who suggested that additional interest rate hikes might be necessary due to inflation remaining above the Fed's 2% target. According to CME Group's FedWatch Tool, traders are currently pricing in a 71% probability of a rate increase at the Fed's next policy meeting.
Cracker Barrel's stock rallied after the casual dining chain surpassed fourth-quarter sales estimates. Conversely, Paychex experienced a drop after its largest segment missed first-quarter revenue expectations.