By Stephen Culp and Tharuniyaa Lakshmi
NEW YORK, Oct 7 (Reuters) - Wall Street closed lower on Wednesday, as long-dated US Treasury yields resumed their climb, reviving fears about inflation and mounting debt the day after the S&P 500 and the Nasdaq hit record closing highs.
All three major US stock indexes were modestly lower, with the S&P 500 and the Dow poised to snap their four-day winning streaks. The Nasdaq was on track for its first down day in six.
The small-cap Russell 2000 underperformed its
larger cap counterparts.
In the wake of Tuesday's stock market rally, Brent crude briefly crept above $100 per barrel and the 30-year Treasury bond yield touched a 24-year high.
Iran war-related supply concerns have led to soaring oil prices, which in turn have revived inflation worries and raised the chances of a prolonged central bank rate hiking cycle. Those concerns, combined with mounting corporate and sovereign debt levels, have caused a global bond selloff, which rattled global markets in recent weeks.
Investors "have been looking for some relief on oil, which would drive some relief on rates and that would therefore help the stock market," said Thomas Martin, senior portfolio manager at GLOBALT in Atlanta.
"The third quarter was supposed to be the weak quarter of the year; we were supposed to get a correction," Martin added. "That didn't happen, so it's three cheers and let's take some money off the table."
Stocks pared losses after crude prices turned lower following the International Energy Agency's agreement to speed up the release of oil stocks, prioritizing diesel.
Minutes from the US Federal Reserve's September monetary policy meeting, at which the central bank unanimously approved its first interest rate hike since July 2023, revealed divisions over the rationale of the increase. Some participants saw a hike as necessary to keep the impact of energy price shocks at bay, while others felt the increase was necessary to curb demand-driven inflation.
Financial markets are currently pricing in less than a 20% likelihood that the Fed will implement a second consecutive rate hike at the conclusion of its October meeting, down from 37.6% a week ago, per CME's FedWatch tool.
"The market’s Fed expectations are going to seesaw as it gets new bits of data," Martin said. "There's still an expectation for more rate hikes, but it isn't necessarily going to be a hike every meeting and that's what the market is telling you; October will be a pause."
According to preliminary data, the S&P 500 lost 17.78 points, or 0.23%, to end at 7,801.15 points, while the Nasdaq Composite lost 66.50 points, or 0.24%, to 27,533.39. The Dow Jones Industrial Average fell 355.91 points, or 0.69%, to 51,165.37.
Following the upward march of benchmark Treasury yields, the 30-year fixed mortgage rate surged last week to a near three-year high, according to the Mortgage Bankers Association. Housing and homebuilders were down 2.3% and 2.9%, respectively.
Chip stocks, which had soared over 80% so far this year, ended the session lower.
SpaceX shares retreated following media reports that Elon Musk's aerospace firm was seeking $40 billion in financing to fund purchases of Nvidia chips.
Next week, third-quarter reporting season is expected to begin in earnest with a spate of high-profile financial firms expected to post results.
Investors are likely to scrutinize the extent to which massive expenditures on AI technology are beginning to show results, while also watching for clues regarding the health of the US consumer at a time of mounting inflationary pressures.
Analysts currently expect year-on-year S&P 500 earnings growth of 30.6%, on aggregate, for the July-through-September period, according to LSEG.
(Reporting by Stephen Culp; Additional reporting by Tharuniyaa Lakshmi and Shashwat Chauhan in Bengaluru; Editing by David Gregorio)
