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Wall Street sank deeper into a bear market on Tuesday, with the S&P 500 recording its lowest close in almost two years as Federal Reserve policymakers showed an appetite for more interest rate hikes, even at the risk of throwing the economy into a downturn. The benchmark U.S. 10-year Treasury yield touched its highest level in more than 12 years, while the TSX finished lower for the sixth straight session.

The S&P 500 is down about 24% from its record high close on Jan. 3. Last week, the Fed signaled that high rates could last through 2023, and the index erased the last of its gains from a summer rally and recorded its lowest close since November 2020.

Chicago Fed President Charles Evans, St. Louis Fed President James Bullard and Minneapolis Federal Reserve Bank President Neel Kashkari on Tuesday all reiterated the central bank’s stance and pushed yields higher.

Evans said the Fed will need to raise interest rates to a range between 4.50% and 4.75%, a more aggressive stance than he had previously embraced. Evans will be a voter at next year’s Federal Open Market Committee (FOMC).

Bullard, a current voter at this year’s policy meeting, said he sees the likely peak for policy rate at 4.5%, and noted that the Fed will have to stay at the higher rate for some time.

Kashkari, an alternate voting member, said U.S. central bankers are united in their determination to do what is needed to bring inflation down.

“It’s disappointing, but it’s not a surprise,” said Robert Pavlik, senior portfolio manager at Dakota Wealth in Fairfield, Connecticut. “People are concerned about the Federal Reserve, the direction of interest rates, the health of the economy.”

Analysts at Wells Fargo now see the U.S. central bank taking its target range for the Fed funds rate to between 4.75% and 5.00% by the first quarter of 2023.

Concerns about corporate profits taking a hit from soaring prices and a weaker economy have also roiled Wall Street in the past two weeks.

Analysts have cut their S&P 500 earnings expectations for the third and fourth quarters, as well as for the full year. For the third quarter, analysts now see S&P 500 earnings per share rising 4.6% year-over-year, compared with 11.1% growth expected at the start of July.

The Canadian benchmark stock index is now back to trading at levels last seen in early 2021. On Tuesday, the S&P/TSX Composite Index fell 19.13 points, or 0.10%, at 18,307.91. Financials were down about 1% but energy bounced back from Monday’s selloff, rising just over 2%.

Oil rose about $2 a barrel from a nine-month low a day earlier, supported by supply curbs in the U.S. Gulf of Mexico ahead of Hurricane Ian and as the U.S. dollar eased from its strongest level in two decades. Prices also drew support from analyst expectations of possible supply cuts from the Organization of the Petroleum Exporting Countries and allies (OPEC+), which is to meet to set policy on Oct. 5.

On Wall Street, seven of 11 S&P 500 sector indexes fell, with utilities and consumer staples each down about 1.7% and leading declines.

Tesla gained 2.5% and Nvidia added 1.5%, with both companies helping keep Nasdaq in positive territory.

The Dow Jones Industrial Average fell 0.43% to end at 29,134.99 points, while the S&P 500 lost 0.21% to 3,647.29. The Nasdaq Composite climbed 0.25% to 10,829.50.

The U.S. 10-year bond yield hit 3.992%, the highest since April 5, 2010. It was last up 8.3 basis points to 3.964%. Since August 2, the 10-year yield has surged by 145 bps.

U.S. 30-year yields also touched a milestone on Tuesday, advancing to 3.847%, the strongest level since January 2014. The yield was last up 13.2 basis points to 3.829%.

Canadian government bond yields rose across much of a steeper curve. The 10-year touched its highest level since June 29 at 3.361% before dipping to 3.297%, up 7 basis points on the day.

Fed officials have been resolute in their comments that the central bank will take strong steps in raising interest rates to combat rising prices until they see extended evidence that inflation is on the wane.

“That is going to be the name of the game for the next four to six months, inflation is not headed lower on a string, it is going to be a bumpy road to get down below 3%,” said John Luke Tyner, fixed income analyst at Aptus Capital Advisors In Fairhope, Alabama.

“We are in for a world of pain until the problem gets cleared by.”

U.S. data on Tuesday indicated the economy may be able to sustain growth even in the face of higher interest rates, as new orders for U.S.-manufactured capital goods increased more than expected in August. In addition, an index on consumer confidence rose for September rose to 108 from the prior month and and topped expectations of 104.5

Sales of new U.S. single-family homes also showed a surprise increase in August. New home sales surged 28.8% to a seasonally adjusted annual rate of 685,000 units, data showed. July’s sales pace was revised higher to 532,000 units from the previously reported 511,000 units.

Reuters, Globe staff

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