It’s another red session for Wall Street on Wednesday, with signs of a bearish trend becoming increasingly apparent.

The drivers behind the weakening risk sentiment continue to be the rise in crude oil prices, with WTI climbing to $93 per barrel, marking over a 3% gain in the session, and the increase in Treasury yields, with the 10-year reaching 4.6%.

Minneapolis Fed President Neel Kashkari delivered hawkish remarks, asserting a significant likelihood of further interest rate hikes and indicating a lack of rate cuts in 2024.

Energy was by far the outperformer for the day, with the Energy Select Sector SPDR Fund (NYSE:XLE) up over 2%, on track for its fourth straight month of gains.

Cues From Wednesday’s Trading:

Large-cap averages were all down on Wednesday, with blue-chip stocks in the Dow Jones underperforming both the S&P 500 and the Nasdaq 100.

Surprisingly, small caps held remarkably well, with the Russell 2000 rising 0.6%.

US Index Performance On Wednesday

Analyst Color:

The stagflationary setup has led to a 40% spike in the VIX in September, and “we will see volatility through the end of the year, said Alex McGrath, chief investment officer for NorthEnd Private Wealth.

“Elevated yields will serve as a headwind to equities through the end of the month and perhaps the end of the year as the risk free rate of return continues to bludgeon the high multiples of the ‘Sisyphus Seven’ that rolled the market up the hill in 2023,” he said.  

The UAW strikes and the likelihood of a government shutdown will only serve as ancillary drags on investor sentiment, not broadly affecting the performance of the markets, the analyst said.  He sees inflation remaining high as oil has begun to rally, bond yields remain elevated, credit card balances surge and student loan payments go live in October, he added.

Wednesday’s Trading In Major US Equity ETFs

Looking at S&P 500 sector ETFs:

• The Energy Select Sector SPDR Fund gained the most, up 2.2%, followed by the Industrials Select Sector SPDR Fund (NYSE:XLI), up 0.5%.
• The Utilities Select Sector SPDR Fund (NYSE:XLU) was the laggard, down 1.2%.

Latest Economic Data:

Orders for durable goods increased by 0.2% month-over-month in August 2023. This rebound followed a revised 5.6% decline in July, surpassing market expectations, which had anticipated a 0.5% decrease.

In the week ending Sept. 22, the average contract interest rate for 30-year fixed-rate mortgages saw a 10-basis-point increase, reaching 7.41%, a level not seen since December 2000.

According to data from the EIA Petroleum Status Report, crude oil inventories decreased by 2.17 million barrels in the week ending Sept. 22. This decline comes after a 2.13-million-barrel drop in the previous reporting period, significantly surpassing market expectations, which had projected a decrease of only 0.32 million barrels.

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