Wall Street sinks as rally fizzles amid higher yields
Stocks dropped Thursday following another mixed set of profit reports from companies, as rising expectations for interest rates keep up the pressure on Wall Street.
The S&P 500 fell 0.9%, while the Dow Jones Industrial Average lost 249 points, or 0.7%, and the Nasdaq composite sank 1%. All three indexes had been up by close to 1% in the morning, before momentum gave out.
Stocks have been shaky this week, flipping from gains to losses and back again amid uncertainty about where interest rates and inflation are heading. A still-strong jobs market has investors buying more into the Federal Reserve's forecast that it will hike rates a couple more times before holding them at a high level through this year. High rates can drive down inflation but also raise the risk of a recession and hurt investment prices.
A narrowing disconnect between markets and the Fed could lead to less volatility in markets in the future, said Thomas Martin, senior portfolio manager at Globalt Investments. But for now, with a jumble of earnings reports pouring in from companies along Wall Street and questions remaining about whether the economy can avoid a sharp recession, swings are likely to remain.
“There's continuing evidence that the economy is stronger than people thought it was going to be,” Martin said. “The question is what is the economy's ability to continue that resilience in the face of interest rates that are a lot higher than they were a year ago.”
In the bond market, at least, a warning signal is continuing to flash red with yields on shorter-term Treasurys well above longerterm Treasurys. It's an unusual occurrence that has often preceded recessions in the past.
The two-year Treasury yield, which tends to move with expectations for Fed action, climbed to 4.48% from 4.43% late Wednesday. It reached its highest level since mid-November during the day, according to Tradeweb. The 10-year Treasury, which helps set rates for mortgages and other loans, rose to 3.66% from 3.62%.