U.S. stocks open lower as oil prices revive inflation concerns

What’s driving markets

Risk appetite was muted across markets on Wednesday as benchmark Treasury yields
BX:TMUBMUSD10Y
hovered just shy of recent multiyear highs and oil prices traded within a couple of dollars of their most expensive levels of 2023.

The price of Brent crude
BRN00,
+0.09%
on Tuesday rose above $90 a barrel for the first time since November, after Saudi Arabia and Russia said they would extend production cuts until the end of the year. Brent dipped to $89.83 early Wednesday.

The increase in energy prices has raised concerns that inflationary pressures will be revived, forcing central banks to keep borrowing costs higher for longer. The 10-year Treasury yield
BX:TMUBMUSD10Y,
which at one point last Friday was trading below 4.10%, was 4.25% early Wednesday, just 11 basis points below the 16-year peak touched in September.

“[W]hile oil bulls are dancing in the street, the notable price uptick could prove challenging for central banks and financial markets, which were embellishing the current lower inflation groove…if bonds are selling off mainly thanks to higher inflation expectations, that truly will be bad news for markets,” said Stephen Innes, managing partner at SPI Asset Management.

Investors will be eyeing the release at 2 p.m. Eastern of Federal Reserve’s Beige Book.

The U.S. international trade deficit widened 2% in July to $65 billion, the Commerce Department said Wednesday. Economists surveyed by The Wall Street Journal had predicted the deficit would widen to a seasonally adjusted $68 billion from the initial estimate of a deficit of $65.5 billion in June. The trade gap in June was revised down to $63.7 billion.

Other U.S. economic updates set for release on Wednesday include the final reading of the S&P U.S. services PMI for August, due at 9:45 a.m., and the ISM services report for August due at 10 a.m.

Meanwhile, Boston Fed President Susan Collins said on Wednesday that the U.S. economy will start to soften as the year draws to a close and then the weak growth will persist in 2024.

“I do expect to see slowing growth by the end of this year and throughout 2024,” Collins said, in a speech to the New England Council.

Mark Newton, head of technical strategy at Fundstrat, agreed that the rise in bond yields may deliver “short term selling pressure for U.S. stocks,” and that Tuesday’s performance may have been notably worse if not for a stoic showing from technology shares.

Key support for the S&P 500 index lies at 4458, which is near a 38.2% Fibonacci retracement of the rally from mid-August, said Newton. Additional support lies at 4439, while a break of 4415 could allow for a more meaningful period of weakness and retest of August lows.

“At present, I am not expecting a severe decline in September, and expect that any further dips find support into midmonth before rallying back. However, Tuesday’s drop to multiday lows on a closing basis likely does extend a bit lower this week ahead of finding support and turning higher,” said Newton.

Companies in focus

• AMC Entertainment Holdings Inc.
  AMC,
  -21.03%
   tumbled 15.8% Wednesday toward the lowest price seen since January 2021 after the movie theater operator disclosed an equity distribution agreement in which the company could sell up to 40 million common shares.

• Core & Main Inc.
  CNM,
  -5.59%
   declined 6% on Wednesday, after the provider of water, storm drainage and fire protection products and services to contractors and municipalities missed fiscal second-quarter profit expectations and trimmed its full-year sales growth outlook, citing “pockets of weakness” in new projects.