Another sharp drop dumps Wall Street back to where it was in May
Wall Street fell sharply Wednesday, dropping back to where it was in May, after rising bond yields tightened their chokehold and some of the market’s most influential companies turned in mixed profit reports.
The Standard & Poor’s 500 index tumbled 1.4% for its eighth drop in the last 10 days. Some of the heaviest losses hit Big Tech stocks, which dragged the Nasdaq composite to its second-worst drop of the year, at 2.4%. The Dow Jones industrial average fell 0.3%.
Microsoft was an outlier and rose 3.1% after reporting stronger profit and revenue for the summer than analysts expected. Its movements carry extra weight on the market because it’s the second-largest company by market value.
But Alphabet was tugging the market lower even though the parent company of Google and YouTube also reported stronger profit than expected. Its stock fell 9.5% on worries about a slowdown in growth for its cloud-computing business.
Alphabet is another one of Wall Street’s biggest companies and, like Microsoft, a member of the “Magnificent Seven” group of Big Tech stocks that’s accounted for a disproportionate amount of the S&P 500’s gain this year.
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Also pressuring the overall stock market was a rise in longer-term Treasury yields. The 10-year yield climbed to 4.94% from 4.82% late Tuesday, which helped to send the large majority of stocks on Wall Street lower.
Rapidly rising yields have been knocking the stock market lower since the summer. The 10-year yield has been catching up to the Federal Reserve’s main interest rate, which is above 5.25% and at its highest level since 2001 as the central bank tries to get inflation under control.
The 10-year yield earlier this week hit its highest level above 5% since 2007, and high yields knock down prices for stocks and other investments while slowing the overall economy and adding pressure to the financial system.
High yields tend to most hurt stocks seen as very expensive or those requiring their investors to wait the longest for big growth. That puts the spotlight on internet-related, technology and other high-growth stocks. Besides Alphabet, sharp drops of 5.6% for Amazon, 4.3% for Nvidia and 1.3% for Apple were the heaviest weights on the S&P 500.
All told, the S&P 500 fell 60.91 points to 4,186.77. The Dow dropped 105.45 points to 33,035.93, and the Nasdaq sank 318.65 points to 12,821.22. The Dow held up better than other indexes because it includes Microsoft but not Alphabet.
Many investors have been hoping that the Fed will soon cut rates to allow the system more oxygen. But they’ve had to consistently push out such predictions with each successive report on the job market that’s come in remarkably solid. Such strength has kept the economy out of a recession but could also be adding upward pressure on inflation.
Investors banking on rate cuts may be depending on a playbook that’s become obsolete, said Bryant VanCronkhite, senior portfolio manager at Allspring Global Investments. He said that may be pushing them to not take seriously enough the possibility of a global recession, which would be the result of rates left too high for too long.
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For decades, the Fed has come to the rescue of markets and the economy whenever trouble arose by quickly cutting interest rates. That’s because high inflation was not a problem. But now, with the trend of globalization retreating and other long-term swings pushing upward on inflation, VanCronkhite said the Fed has to worry about more than just propping up the job market.
“I think the market is still believing the U.S. Fed are a series of magicians with crystal balls that will see the problem beforehand and solve it before it becomes too serious,” he said. “I believe the Fed is under a new paradigm and will be slower to react.”
“Their focus is going to be on inflation first, economy second, in my mind. As a result, I don’t think they’ll respond quickly. In fact, I think the Fed wants a recession.”
High rates and yields have already inflicted pain on the housing market, in which mortgage rates have jumped to their highest levels since 2000. The Fed’s hope is to restrain the economy enough to cool inflation, but not so much that it creates a deep recession.
A report Wednesday said sales of new homes were stronger in September than economists expected, potentially complicating things for the Fed. They’ve been mostly recovering since hitting a bottom in the summer of 2022, with a dearth of previously occupied homes for sale pushing buyers toward new construction.
The IRS said Monday that Californians in 55 of the state’s 58 counties would not have to pay their 2022 taxes or 2023 estimated taxes until Nov. 16. Then, the state followed suit.
In the oil market, crude prices were holding relatively steady after slumping sharply earlier this week to take some pressure off inflation. A barrel of U.S. crude rose $1.65 to settle at $85.39. Brent crude, the international standard, jumped $2.06 to $90.13 per barrel.
U.S. oil had been above $93 last month, and it’s bounced up and down since then amid concerns that the latest Hamas-Israel war could lead to disruptions in supplies from Iran or other big oil-producing countries.
In stock markets abroad, indexes were modestly higher across most of Europe and Asia.
AP writers Matt Ott and Elaine Kurtenbach contributed to this report.
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