U.S. and Canadian stocks closed lower on Wednesday, as climbing Treasury yields pressured megacap stocks on Wall Street and investors grew less confident about strong rate cuts from the Federal Reserve.
Benchmark 10-year U.S. Treasury yields reached a three-month high with investors reassessing the Fed rate-cut outlook over the next few months against the backdrop of strong economic data and the upcoming presidential election.
“The market is struggling to digest this latest backup in yields,” said Adam Turnquist, chief technical strategist for LPL Financial.
While the Bank of Canada cut its trend-setting overnight right by 50 basis points, that came as little surprise to markets, and bond yields in Canada followed their U.S. counterparts higher across the curve.
U.S. 10-year yields have broken above key technical levels, including the 200-day moving average and the 50% Fibonacci retracement from their April to September fall.
“The markets are worried about the next president and spending, whether it’s Harris or Trump,” said Tom di Galoma, head of fixed-income trading at Curvature Securities.
Some of this week’s move higher in yields has been attributed to rising odds that Donald Trump will win the U.S. presidential election, with policies including tariffs and crackdowns on illegal immigration seen as sparking higher inflation. Betting site Polymarket shows a 64% chance of Trump winning and a 36% probability of a victory by Kamala Harris.
Many investors are also generally hesitant to buy bonds before the results of the election become clear, with the fiscal outlook also depending on whether one party secures a majority in Congress.
“It seems like a little bit of a buyer’s strike going into the election, at which point I would expect a lot of money to be deployed,” said Dan Mulholland, head of rates – sales and trading at Crews & Associates in New York.
“Along with that has also been a lot of strong data, so it’s kind of a rethinking of the Fed’s terminal rate, where we’re going to end up,” he said.
Benchmark U.S. 10-year note yields were up 3.6 basis points in late trading at 4.242%. There was a similar move in Canada, where even shorter term bond yields, including the two-year, followed U.S. yields higher on the day.
Among rate-sensitive megacaps in New York, Nvidia fell 2.81%, Apple 2.16%, Meta Platforms 3.15% and Amazon slid 2.63%, dragging on the tech-laden Nasdaq.
Out of the 11 S&P sub sectors, only the rate-sensitive utilities and real estate sectors posted gains.
The Dow Jones Industrial Average fell 409.94 points, or 0.96%, to 42,514.95, the S&P 500 lost 53.78 points, or 0.92%, to 5,797.42 and the Nasdaq Composite lost 296.47 points, or 1.60%, to 18,276.65.
McDonald’s tumbled 5.12% after an E. coli infection linked to its Quarter Pounder hamburgers killed one and sickened many. Coca-Cola fell 2.07% after the company reiterated its annual profit growth forecast even though it expected higher revenue.
The broader consumer discretionary sector also dropped 1.82%, while the information technology was down 1.68%.
“You have a market that had gotten up to new all time highs so portfolio managers are looking around and saying: maybe I should take some profits,” said Thomas Martin, senior portfolio manager, Globalt Investments.
The S&P/TSX composite index ended down 143.08 points, or 0.6%, at 24,573.62, extending its pullback from an all-time closing high on Friday.
The technology and energy sectors both fell 1.2%. The price of oil settled 1.4% lower at US$70.77 a barrel.
Gold and copper prices also fell, weighing on metal mining shares. The materials group lost 0.9%.
First Quantum Minerals was a bright spot in Toronto. Its shares rose 1.3% after the copper miner beat quarterly profit estimates and said it is in talks with potential partners for its Zambian assets.
In other U.S. stock moves, Boeing dropped 1.76% after the planemaker reported a quarterly loss of US$6 billion owing to a crippling strike. Factory workers at Boeing will vote later in the day on a new contract proposal that could end the standoff after more than five weeks.
Semiconductor company Texas Instruments gained 4% after its third-quarter profit beat forecasts, while AT&T rose 4.60% after gaining more wireless subscribers than expected in the third quarter.
Tesla, the first of the so-called Magnificent Seven companies scheduled to report quarterly results, closed down, but gained 8% in after hours trading, as it beats profit margin estimates.
The benchmark S&P 500 had its third consecutive daily decline.
U.S. markets are near record-high levels, but a combination of earnings, a changing monetary policy outlook and the upcoming presidential election will test the rally and could stoke volatility, analysts said.
Richmond Fed President Thomas Barkin said the central bank’s fight to return inflation to its 2% target may take longer than expected, limiting interest rate cuts.
The Fed “Beige Book” survey showed U.S. economic activity was little changed from September through early October while firms saw an uptick in hiring.
Declining issues outnumbered advancers by a 3.27-to-1 ratio on the NYSE. There were 102 new highs and 59 new lows on the NYSE. The S&P 500 posted 28 new 52-week highs and 4 new lows while the Nasdaq Composite recorded 60 new highs and 90 new lows. Volume on U.S. exchanges was 11.83 billion shares, compared with the 11.29 billion average for the full session over the last 20 trading days.
Reuters, Globe staff