U.S. stocks slide for third day as surging Treasury yields, stronger dollar bite

What’s driving markets

Stocks fell at the open on Thursday as the impact from Wednesday’s Fed meeting continued to play out across global markets.

In the U.S., the S&P 500 and Nasdaq were trading at their lowest levels in about a month, according to FactSet data, as all three major equity indexes were on track to log their lowest closing levels of September.

The Fed’s press conference impacted stocks in a couple of ways. There were the projections from the Fed’s “dot plot” forecast, which showed senior Fed officials expect the policy rate target to remain north of 5% for at least all of 2024, and hawkish comments from Powell about the potential impact of rising oil prices on inflation.

Taken together, the dots and Powell’s commentary appeared to drive home a message that the market has been trying to ignore for months: the Fed isn’t planning to meaningfully lower interest rates any time soon, and likely not in 2024. That could create more problems especially for high-flying growth stocks in the weeks and months ahead, said Eric Diton, president and managing director of the Wealth Alliance, during a phone interview with MarketWatch.

“The market is waking up and saying ‘Oh wait a minute, the Fed isn’t going to cut rates’. So those growth stocks, they’re vulnerable,” Diton said.

This dynamic was already playing out on Thursday, with Treasury yields once again weighing on some of the best-performing large-cap stocks, including Nvidia Corp.
NVDA,
-1.86%,
which has become the poster child for the “Magnificent Seven” group of megacap technology stocks that have driven much of this year’s gains, driven mostly by optimism tied to the artificial-intelligence boom.

Read more: For better gains in tech stocks from here, look beyond the ‘Magnificent Seven’

On the other hand, defensive sectors like utilities and health care were outperforming.

In the wake of the Fed’s decision, long-dated Treasury yields have risen to the highest levels in more than a decade while the U.S. dollar is trading at its highest level since March.

The yield on the 10-year Treasury note
BX:TMUBMUSD10Y
climbed to 4.474%, rising 10 basis points as it reached its highest level since late 2007. The ICE U.S. Dollar Index
DXY,
a gauge of the buck’s strength against a basket of rivals, rose 0.5$ to 105.63.

Adding more fuel to the dollar’s gains, the Bank of England decided to leave interest rates on hold Thursday, signaling a shift in its battle against inflation.

U.S. investors also digested a fresh batch of U.S. economic data on Thursday.  The number of Americans applying for jobless benefits fell to 201,000 last week, the lowest level in eight months.  The Philadelphia Fed said Thursday that its gauge of regional business activity fell back into contraction territory in August. Finally, the leading economic index fell 0.4% in August and declined for the 17th month in a row.

Companies in focus

• FedEx Corp.
  FDX,
  +4.49%
  rose after the package deliverer raised its full-year profit outlook, as efforts to cut billions in costs helped its bottom line despite weaker shipping demand that weighed on sales.

• Klaviyo Inc.
  KVYO,
  -2.93%
  fell after the digital-marketing platform finished 9.2% higher on its trading debut. Arm Holdings, another company that recently debuted after a long IPO drought, also saw a decline.

• KB Home
  KBH,
  -3.18%
  slipped even though the home builder posted earnings ahead of estimates and guided for full-year revenue above estimates.

• Broadcom Inc.
  AVGO,
  -1.90%
  was down after a report indicated that executives at Google have thought about ditching the company as its supplier of artificial-intelligence chips.

• Fox Corp.
  FOXA,
  +2.83%
  shares climbed following news that Chairman Rupert Murdoch is leaving his executive chairman post at News Corp and Fox. News Corp is the owner of Dow Jones & Co., the publisher of this report.