US Stocks Struggle As Fed Sounds Hawkish; Oil, Treasury Yields Rise Further: What's Driving Markets Wednesday?

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 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

• The SPDR S&P 500 ETF Trust SPY was 0.3% lower to $424.59.
• The SPDR Dow Jones Industrial Average ETF DIA fell 0.4% to $334.63.
• The Invesco QQQ Trust QQQ fell 0.2% to $354, according to Benzinga Pro data.

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 XLI, up 0.5%.
• The Utilities Select Sector SPDR Fund 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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Stocks In Focus:

Costco Wholesale Corp. COST rose about 1.6% following the release of its quarterly results. Other companies reacting to their earnings are Progress Software Corp. PRGS, down 3%, and Paychex, Inc. PAYX, up nearly 4%.
• Hayward Holdings Inc. HAYW rose over 8% after the company was included in the S&P 600.
• Nextera Energy Inc. NEE fell nearly 7% as the company downwardly revised growth for the upcoming years.
• Exxon Mobil Corp. XOM soared 2.1%, hitting highs last seen in April 2023.
• Newmont Corp. NEM fell over 4.4%, on track for the lowest close since mid-March 2020. Other major gold miners such as Agnico Eagle Mines Ltd. AEM and Barrick Gold Corp. GOLD fell 4.5% and 3.5%, respectively, as a stronger dollar and higher Treasury yields weigh on the sector.
• Companies reporting after the close include H.B. Fuller Company FUL, Micron Technology, Inc. MU and Worthington Industries, Inc. WOR.

Commodities, Bonds, Other Global Equity Markets:

Crude oil rocketed 3.2%, with a barrel of WTI-grade crude trading at $92.85. The United States Oil Fund ETF USO was 2.6% higher to $83.01.  

Treasury yields were higher, with the 10-year yield up by 6 basis points to 4.6% and the 30-year yield up by 4 basis points to 4.72%. The iShares 20+ Year Treasury Bond ETF TLT was 0.5% lower for the day. 

The dollar rose, with the U.S. dollar index, which is tracked by the Invesco DB USD Index Bullish Fund ETF UUP, up 0.5%. The EUR/USD pair, which is tracked by the Invesco CurrecyShares Euro Currency Trust FXE, was 0.7% lower to 1.0501.

European equity indices closed in the red. The SPDR DJ Euro STOXX 50 ETF  FEZ fell 0.7%. 

Gold tumbled 1.4% to $1,875/oz, and silver fell 1.5% to $22.51. Bitcoin BTC/USD was flat at $26,224.

Staff writer Piero Cingari updated this report midday Wednesday. 

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