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Wall Street closed lower on Wednesday to start off the month. Manufacturing sector numbers reiterated the prevailing notion that inflation is still at an alarmingly high level. Treasury yields soared right through the day, raising concerns of an impending recession. Two of the three major indexes ended in the red, while one remained virtually flat.
How Did the Benchmarks Perform?
The Dow Jones Industrial Average (DJI) virtually remained flat, rising 5.14 points to close at 32,661.84. Eighteen components of the 30-stock index ended in negative territory, while 12 ended in positive.
The S&P 500 lost 0.5% or 18.76 points to close at 3,951.39. Eight of the 11 broad sectors of the benchmark index ended in negative territory. The Utilities Select Sector SPDR (XLU), the Real Estate Select Sector SPDR (XLRE) and the Consumer Discretionary Select Sector SPDR (XLY) fell 1.7%, 1.5% and 1.3%, respectively, while the Energy Select Sector SPDR (XLE) advanced 2%.
The tech-heavy Nasdaq dropped 0.7% or 76.06 points to finish at 11,379.48.
The fear-gauge CBOE Volatility Index (VIX) was down 0.6% to 20.58. A total of 11 billion shares were traded on Wednesday, lower than the last 20-session average of 11.4 billion. Decliners outnumbered advancers on the NYSE by a 1.32-to-1 ratio. On Nasdaq, a 1.29-to-1 ratio favored declining issues.
Manufacturing Numbers Indicate Inflation Will Remain High
The Institute for Supply Management's manufacturing PMI increased to 47.7 in February from 47.4 in January. This is the first monthly gain for the PMI in six months. A reading of below 50 generally indicates contraction in manufacturing, and this was the fourth month in a row that the manufacturing sector contracted.
Although the PMI remained below 50, an increase from the last period suggests that things are looking up for the sector in a relative sense. It can be argued that the worst could be over for manufacturing. Business spending on raw materials and equipment has rebounded, order bookings have increased, and supply-chain worries have eased off from last year’s lows. But the same also entails that inflation continues to be high, and the Fed’s policies have yet to take full effect. This made investors weary of further tax hikes from the central bank.
2-Year Treasury Yield Touches 16-Year High
The benchmark U.S. 10-year treasury yield topped the 4% mark for the first time since November once the manufacturing numbers were out. It reached a high of 4.006%. The 2-year bond yield, however, advanced to 4.904%, its highest since 2007, before settling down at 4.891%, up 9.4 basis points.
Treasury yields share an inverse relation to prices. Increasing bond yields cast an adverse effect on stocks because their current valuation looks untenable in comparison to their future potential in a recessionary economy.
A couple of Fed officials turned hawkish on Wednesday and said that more aggressive interest rate hikes might be needed to slow inflation. Minneapolis Fed President Neel Kashkari said he is remaining open-minded about whether the Fed should raise rates by 25 or 50 bps at its next policy meeting slated for later this month. With Kashkari being a voting member of the FOMC, this comment comes as bad news for market participants as in recent weeks they have been pricing in a 25 bps hike only.
Atlanta Fed President Raphael Bostic also said on Wednesday that he believes the Fed needs to raise its policy rate by 50 bps, to a range of 5%-5.25%, and keep it there well into 2024.
Economic Data
The U.S. Census Bureau reported that construction spending during January was estimated at a seasonally adjusted annual rate of $1,825.7 billion, 0.1% below the revised December estimate of $1,827.5 billion. The December number was revised down to a decrease of 0.7% from the previously reported decrease of 0.4%.
According to a government report, for the week ending Feb 24, 2023, U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 1.2 million barrels from the previous week.
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Stock Market News for Mar 2, 2023
Wall Street closed lower on Wednesday to start off the month. Manufacturing sector numbers reiterated the prevailing notion that inflation is still at an alarmingly high level. Treasury yields soared right through the day, raising concerns of an impending recession. Two of the three major indexes ended in the red, while one remained virtually flat.
How Did the Benchmarks Perform?
The Dow Jones Industrial Average (DJI) virtually remained flat, rising 5.14 points to close at 32,661.84. Eighteen components of the 30-stock index ended in negative territory, while 12 ended in positive.
The S&P 500 lost 0.5% or 18.76 points to close at 3,951.39. Eight of the 11 broad sectors of the benchmark index ended in negative territory. The Utilities Select Sector SPDR (XLU), the Real Estate Select Sector SPDR (XLRE) and the Consumer Discretionary Select Sector SPDR (XLY) fell 1.7%, 1.5% and 1.3%, respectively, while the Energy Select Sector SPDR (XLE) advanced 2%.
The tech-heavy Nasdaq dropped 0.7% or 76.06 points to finish at 11,379.48.
The fear-gauge CBOE Volatility Index (VIX) was down 0.6% to 20.58. A total of 11 billion shares were traded on Wednesday, lower than the last 20-session average of 11.4 billion. Decliners outnumbered advancers on the NYSE by a 1.32-to-1 ratio. On Nasdaq, a 1.29-to-1 ratio favored declining issues.
Manufacturing Numbers Indicate Inflation Will Remain High
The Institute for Supply Management's manufacturing PMI increased to 47.7 in February from 47.4 in January. This is the first monthly gain for the PMI in six months. A reading of below 50 generally indicates contraction in manufacturing, and this was the fourth month in a row that the manufacturing sector contracted.
Although the PMI remained below 50, an increase from the last period suggests that things are looking up for the sector in a relative sense. It can be argued that the worst could be over for manufacturing. Business spending on raw materials and equipment has rebounded, order bookings have increased, and supply-chain worries have eased off from last year’s lows. But the same also entails that inflation continues to be high, and the Fed’s policies have yet to take full effect. This made investors weary of further tax hikes from the central bank.
2-Year Treasury Yield Touches 16-Year High
The benchmark U.S. 10-year treasury yield topped the 4% mark for the first time since November once the manufacturing numbers were out. It reached a high of 4.006%. The 2-year bond yield, however, advanced to 4.904%, its highest since 2007, before settling down at 4.891%, up 9.4 basis points.
Treasury yields share an inverse relation to prices. Increasing bond yields cast an adverse effect on stocks because their current valuation looks untenable in comparison to their future potential in a recessionary economy.
Consequently, shares of Alexandria Real Estate Equities, Inc. (ARE - Free Report) and Netflix, Inc. (NFLX - Free Report) dropped 4.6% and 2.7%, respectively. Both carry a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
Fed Officials Turn Hawkish
A couple of Fed officials turned hawkish on Wednesday and said that more aggressive interest rate hikes might be needed to slow inflation. Minneapolis Fed President Neel Kashkari said he is remaining open-minded about whether the Fed should raise rates by 25 or 50 bps at its next policy meeting slated for later this month. With Kashkari being a voting member of the FOMC, this comment comes as bad news for market participants as in recent weeks they have been pricing in a 25 bps hike only.
Atlanta Fed President Raphael Bostic also said on Wednesday that he believes the Fed needs to raise its policy rate by 50 bps, to a range of 5%-5.25%, and keep it there well into 2024.
Economic Data
The U.S. Census Bureau reported that construction spending during January was estimated at a seasonally adjusted annual rate of $1,825.7 billion, 0.1% below the revised December estimate of $1,827.5 billion. The December number was revised down to a decrease of 0.7% from the previously reported decrease of 0.4%.
According to a government report, for the week ending Feb 24, 2023, U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 1.2 million barrels from the previous week.