Stocks decline, bond rates rise amid Fed rates expectation
investmentnews.comStocks declined, while Treasury yields climbed after a stronger-than-estimated reading on the US services industry bolstered speculation the Federal Reserve will keep interest rates higher for longer.
The S&P 500 closed below 4,500 and the Nasdaq 100 fell almost 1% — with Apple Inc. leading a slide in big tech amid higher bond rates. The company also dropped on a news report that Chinese agencies are barring the use of iPhones at work. Two-year yields topped 5%. Swap contracts showed bets on a Fed hike in November rising to about 60%. The dollar edged higher, following a rally that prompted Japan and China to defend their currencies.
Equities remained lower after the Fed’s Beige Book said growth in the US economy and jobs market slowed in July and August, and many businesses expect wage increases to ease broadly in the near term. The Institute for Supply Management’s US services index rose to a six-month high in August — hitting 54.5. Readings above 50 indicate expansion, and the figure topped all estimates in a Bloomberg survey of economists.
“The ISM Services Sector report underscores the resilience of the largest portion of the economy,” said Quincy Krosby, chief global strategist at LPL Financial. “Unfortunately, the prices-paid component moved in the wrong direction — similar to the higher prices paid in the manufacturing report — edging markedly higher. This is is certainly not good news for a data-dependent Fed.”
Fed Bank of Boston President Susan Collins said policymakers will need to be patient as they assess economic data to figure out their next steps and that further tightening may still be required. Meantime, former Fed Bank of St. Louis chief James Bullard noted officials should continue to pencil in one
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