Stocks slip as report signals ‘downshift’ in economy

Stocks on Wall Street eased further from their recent highs Wednesday amid more signs that U.S. economic growth is being dampened by a resurgence in coronavirus cases and other challenges.

The S&P 500 slipped 0.1 percent, its third straight drop. The benchmark S&P 500 was roughly split between gainers and losers, but weakness in technology, communication and financial stocks weighed down the market. Less risky investments, including consumer staples and utilities, made broad gains.

Small-company stocks fell more than the broader market. Bond yields were mixed. Oil prices rose.

Stock indexes were already in the red before 2 p.m. Eastern, when the Federal Reserve issued its latest survey of the nation’s business conditions. Dubbed the “Beige Book,” the report found that U.S. economic activity “downshifted” in July and August amid rising worries over surging COVID-19 cases, mounting supply chain problems and labor shortages.

The Fed said the slowdown was largely attributable to a pullback in dining out, travel and tourism in most parts of the country, reflecting concerns about the spread of the highly contagious delta variant.

While muted overall, the market’s reaction confirmed that investors are becoming a little bit concerned that economic activity is slowing, said Sam Stovall, chief investment strategist at CFRA.

“You could also say investors were heartened by the fact that the Fed did not say anything worse,” Stovall said.

The S&P 500 fell 5.96 points to 4,514.07, which is 0.5 percent below the all-time high the index set last Thursday. The Dow Jones Industrial Average fell 68.93 points, or 0.2 percent, to 35,031.07, and the Nasdaq composite slid 87.69 points, or 0.6 percent, to 2,249.73. The techheavy index’s decline ended a four-day winning streak.

The Russell 2000 index of smaller companies lost 25.88 points, or 1.1 percent, to 2,249.73.

The market has been trading within a narrow range of gains and losses for the past couple of weeks, as investors look for any sort of understanding of where the U.S. economy is headed with the widespread delta variant of the coronavirus. Investors could be in for a choppy market through September as they monitor the Federal Reserve and Washington, which has to deal with budget reconciliation, infrastructure spending and the debt ceiling.

“If you look at the calendar, it’s aggressive,” said Katie Nixon, chief investment officer at Northern Trust Wealth Management.

Investors received another conflicting report from the government on Wednesday. U.S. employers posted record job openings for the second consecutive month in July, according to the Labor Department. The disconnect between the growing number of job openings and the weak recovery for employment levels is another signal that the overall jobs recovery could be crimping the broader economic recovery.

“People have remained reluctant to engage in the labor market,” Nixon said. “This is not a demand problem, it’s a supply issue.“

If that’s the case, she said, there’s not much the Federal Reserve can do about it and tapering its bond-buying program makes sense. Still, there’s probably a long way to go before the central bank focuses on raising interest rates.

The latest Beige Book will be used by Fed policymakers at their next meeting on Sept. 21-22 to help them decide how to move interest rates and whether to end the central bank’s $120 billion monthly bond purchases, which it has been making since the pandemic started to help lower long-term interest rates.

Technology stocks accounted for a big share of the selling

Wednesday. Apple fell 1 percent and chipmaker Advanced Micro Devices lost 2.7 percent. Among the gainers were consumer staples and utilities companies, including General Mills, which rose 4.6 percent, and Consolidated Edison, which gained 2.7 percent.

Shares of cryptocurrency trading platform Coinbase fell 3.2 percent after the company disclosed it was being investigated by the Securities and Exchange Commission over its plans to offer its cryptocurrency holders a chance to earn interest on their assets if they lent them out. The company said the regulator has threatened to take civil enforcement action, and the launch of the lending program has been delayed until at least October.

The yield on the 10-year Treasury note fell to 1.34 percent after rising sharply on Tuesday to 1.37 percent.

Energy prices moved broadly higher. Oil prices rose 1.4 percent and natural gas prices jumped 7.6 percent.