Investors were once again on edge on Wednesday, as worries about rising interest rates caused the S&P 500 to experience its fourth consecutive session of declines, marking its longest losing streak of the year so far. The index fell by 6.29 points, or 0.2%, closing at 3991.05, while the Dow Jones Industrial Average also suffered losses, dropping by 84.50 points, or 0.3%, to 33045.09. However, the Nasdaq Composite did manage to finish the day up, gaining 14.77 points, or 0.1%, to close at 11507.07.
This back-and-forth in trading reflects a recent shift in the stock market. After racing higher at the beginning of the year, U.S. stocks have experienced some setbacks in recent days, including their worst session of the year on Tuesday. Investors have been keeping a close eye on stronger-than-expected economic data, including readouts on inflation and retail sales, as well as business-activity surveys. This new data has caused investors to sharply reassess their outlooks for interest rates, which has in turn led to a steep jump in the 10-year Treasury yield, stoking volatility across markets.
The yield on the benchmark 10-year Treasury note did tick down slightly to 3.922%, after reaching 3.953% on Tuesday, which was the highest end-of-day level since November. Nevertheless, yields have been racing toward 4% lately, which has stoked volatility across markets and led some investors to ponder how high they will go.
Despite the recent concerns about interest rates, stock and bond markets had a relatively muted reaction to the latest minutes, which showed that most Fed officials believed slowing the pace of interest-rate increases at their meeting three weeks ago offered the best way to balance the risks of doing too much or too little to combat inflation. However, some officials warned against stopping rate increases too soon.
As a result of the recent market turbulence, some investors who had previously jumped back into the market to start the year have taken a more cautious stance lately, either hedging their stock bets or re-evaluating their portfolios.
In terms of individual companies, cybersecurity firm Palo Alto Networks saw its shares surge by $20.86, or about 13%, to $187.75 after it swung to a profit last quarter and raised its guidance for the full fiscal year. On the other hand, CoStar Group shares declined by $3.89, or 5.1%, to $72.13 after the real estate data company said it would not buy a real-estate business from News Corp, the parent company of The Wall Street Journal, and issued a weaker-than-expected first-quarter forecast.
On Tuesday, the S&P 500 fell 81.75 points, or 2%, to 3997.34. The Dow Jones Industrial Average followed suit, falling 697.10 points, or 2.1%, to 33129.59, wiping out its gains for the year. The technology-focused Nasdaq Composite also dropped 294.97 points, or 2.5%, to 11492.30. All three indexes experienced their biggest one-day point and percentage declines since Dec. 15.
Home Depot’s disappointing report sent ripples through the market. The home-improvement retailer warned that its profits will fall this year as it invests an additional $1 billion in wage increases for its hourly employees. Its shares fell $22.45, or 7.1%, to $295.50, their largest one-day percentage decrease in a year and their lowest close since November, according to Dow Jones Market Data. Rival Lowe’s shares also dropped $10.90, or 5.1%, to $201.85. Home Depot’s fall shaved 148 points off the Dow and weighed on the consumer-discretionary segment of the S&P 500, which dropped 3.3% as the index’s weakest link.
Shares of home builders also declined after new data showing sales of previously owned homes fell for the 12th consecutive month in January. Toll Brothers, D.R. Horton, and PulteGroup all fell by more than 2%.
Government-bond yields, meanwhile, experienced a steep climb higher. The yield on the 10-year U.S. government bond rose to 3.953%, up from 3.827% Friday—and markedly higher than its closing low of 3.374% this year. Yields rise when bond prices fall.
Meanwhile, oil prices edged lower, with the most actively traded futures contract for Brent crude, the global benchmark, retreating by 3% to trade at $80.60 a barrel. Overseas, the pan-continental Stoxx Europe 600 fell by 0.3%, while benchmarks in Asia also declined. The Shanghai Composite Index and Hong Kong’s Hang Seng Index both slipped by 0.5%, while Japan’s Nikkei 225 lost 1.3%.
Overall, it is clear that worries about rising interest rates have been the main driver of recent market volatility, as investors continue to weigh up the potential impact of inflation and economic growth on the future path of rates. As always, it remains to be seen how these issues will play out in the coming days and weeks, and how they will ultimately impact global markets.