By Joy Wiltermuth and Mark DeCambre
U.S. stock benchmarks finished lower, losing steam in the session’s final half-hour, ahead of an eagerly awaited inflation report due Thursday, which could set the tone for the broader financial markets.
A decline of the benchmark 10-year Treasury yield, to its lowest level since March 3, led investors into yield-sensitive assets, including technology stocks, but away from the banking sector.
How did major benchmarks perform?
The Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA +0.14% fell 152.68 points, or 0.4%, to end at 34,447.14.
The S&P 500 index /zigman2/quotes/210599714/realtime SPX +0.48% fell 7.71 points, or 0.2%, finishing at 4,219.55, pulling back after touching an intraday high at 4,237.09, surpassing its May 7 record closing high at 4,232.60.
The tech-heavy Nasdaq Composite Index /zigman2/quotes/210598365/realtime COMP +1.00% shed 13.16 points, or 0.1%, to close at 13,911, turning negative after touching an intraday peak at 14,003.50, while booking its first loss in four session.
On Tuesday, stocks barely budged. The Dow fell 30.42 points, or 0.1%, to close at 34,599.82, while the S&P 500 rose less than a full point and the Nasdaq Composite edged up 0.3%.
What drove the market?
Equities remain stuck in a trading range, with the S&P 500 index hovering near an all-time high and the Dow booking a third day in a row of losses, during a marketwide vigil centered on the prospects for inflation.
“I think the market is trying to digest what’s going on in rates,” said Jack Janasiewicz, portfolio manager at Natixis Investment Managers in an interview with MarketWatch, while pointing to the recent fall in the 10-year Treasury note yield to about 1.49%, despite expectations that it might head to around 2% by year’s end.
The falling 10-year yield occurred despite April’s surging consumer-price index, a popular inflation metric, which put already jittery investors about inflation on high alert for a potentially out-of-control climb in prices.
Janasiewicz said falling benchmark yields point to investors “fearing the fear of inflation, as opposed to actual inflation.” In the same vein, he thinks higher commodity prices, including oil near $70 a barrel, have been part of that same narrative. “But to us, the backdrop still is supportive,” he said. “The cyclical trade still works.”
A May reading of the U.S. consumer-price index due on Thursday morning is expected to be the main event of the week. The headline consumer-price index is expected to rise by an outsized 0.5% in May and 4.8% for the year. A hotter-than-expected April CPI reading, which showed prices rose 4.2% year-over-year, briefly rattled markets last month.
The decline in U.S. Treasury yields to their lowest levels since March or February on Wednesday, implies that investors are shaking off inflation fears for now.
Recent upside inflation surprises have not altered our positive view on global equities, wrote Daniel Grosvenor, director of equity strategy at Oxford Economics in a Wednesday report. “We believe the pick-up (in inflation) will ultimately prove transitory and will not trigger premature policy tightening,” the Oxford analyst said.