Wall St slips as economic data stokes inflation and interest rate concerns

Raindrops hang on a sign for Wall Street outside the New York Stock Exchange in Manhattan on October 26, 2020 in New York City, New York. REUTERS/Mike Segar/File Photo Get license rights

  • Apple declines on growth shares and China report
  • Lockheed Martin slips on F-35 jet delivery outlook cut
  • The Fed’s Beige Book showed US economic growth to be „modest”.
  • Indexes down: Dow 0.57%, S&P 0.70%, Nasdaq 1.06%

Sept 6 (Reuters) – Wall Street’s three major averages fell on Wednesday. Nasdaq’s 1% loss after stronger-than-expected services sector data fueled concerns that interest rates will remain high for longer.

The Institute for Supply Management (ISM) on Wednesday said its non-manufacturing purchasing managers’ index rose to 54.5 against expectations of 52.5, while the level of prices paid by service sector businesses for inputs rose.

Traders were betting on a 93% chance the Federal Reserve would leave interest rates unchanged after its meeting on Sept. 20, while bets on another pause in November were 57%, CME Group’s FedWatch tool showed.

„The stronger-than-expected ISM services data shows that investors are still not adept at reading the post-pandemic tea leaves,” said Carol Schlief, chief investment officer of BMO’s family office in Minneapolis.

While market participants expect interest rate cuts soon, Schleiff said the data show a strong economy and inflation that is not coming „fast enough for the Fed to start cutting rates anytime in the foreseeable future.”

Earlier Boston Fed President Susan Collins stressed the need for the central bank to „proceed cautiously” in its next monetary policy actions.

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The prospect of higher rates put particular pressure on growth stocks as the S&P 500 Growth Index (.IGX) underperformed the benchmark throughout the session. Equity investors reacted to rising yields on 10-year and two-year US Treasuries.

„Growth stocks are well-packaged for inflation and priced into the idea that the Fed is going to taper. They will suffer if that idea is no longer there,” said Patrick Keser, portfolio manager at Brandywine Global.

On top of rate concerns, Apple Inc ( AAPL.O ), ended down 3.6%, pressured by reports that China has banned officials at central government agencies from using iPhones and other foreign-branded devices.

The Dow Jones Industrial Average (.DJI) fell 198.78 points, or 0.57%, to 34,443.19, the S&P 500 (.SPX) lost 31.35 points, or 0.70%, to 4,465.48 and the Nasdaq fell 48 points. 1.06%, 13,872.47.

Among the S&P 500’s 11 major industrial sectors, growth-heavy technology (.SPLRCT) saw the biggest decline, losing 1.4%, while defense utilities (.SPLRCU) gained up to 0.2%. Energy ( .SPNY ) was the only other gainer, up 0.1%, supported by higher oil prices.

Oil futures were flat on Wednesday, adding to recent gains that fueled concerns about inflationary pressures.

The S&P 500 showed little reaction to the „Beige Book” snapshot of the U.S. economy, a week ahead of expected August inflation data and the Fed’s rate decision on Sept. 20.

The report showed „modest” U.S. economic growth in recent weeks while job growth has been „subdued” and inflation has eased in most parts of the country.

Lockheed Martin ( LMT.N ) shares fell 4.8% after the U.S. arms maker cut its delivery outlook for its F-35 jets.

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Roku ( ROKU.O ) shares rose 2.9% after the company said it would cut its workforce by about 10% and limit new hires.

Declining issues outnumbered advancers by a 2.05-to-1 ratio on the NYSE; On the Nasdaq, a 1.97-to-1 ratio favored decliners.

The S&P 500 posted six new 52-week highs and 25 new lows; The Nasdaq Composite posted 34 new highs and 174 new lows.

9.39 billion shares changed hands on US exchanges, compared to a moving average of 10.17 billion over the past 20 sessions.

Reporting by Sinead Carew in New York, Shristi Achar A and Amrutha Khandekar in Bengaluru Editing by Vinay Dwivedi and Richard Chang

Our Standards: Thomson Reuters Trust Principles.

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Shristi is a reporter and is part of the Markets team reporting on equity markets in the US, UK, Canada, Europe and emerging markets.

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