North American stocks ended the session slightly lower on Tuesday, as government bond yields continued their ascent ahead of U.S. inflation and labour market data, while investors assessed comments from Federal Reserve officials for the path of interest rates.
Longer-dated US Treasury yields rose, with the 30-year bond hitting 5.6206%, its highest since June 2002. The yield on the benchmark 10-year Treasury bond climbed to 5.293% — its highest level since June 2007. The yield on Canada’s 10-year government bond rose modestly as well, hovering near 4%.
Stocks pared declines, however, as yields eased from their earlier highs and shorter-duration yields were down on the day as oil prices retreated on signs of a recovery in exports from the Middle East and comments from Federal Reserve Bank of New York President John Williams. Williams said the US central bank has time to weigh the data before deciding when to hike interest rates again.
Expectations for a rate hike of at least 25 basis points from the Fed at its October meeting declined to 51.5%, according to CME FedWatch, in the wake of Williams’ comments, from nearly 70% earlier in the session.
After retreating from highs at the start of the month, oil prices have accelerated higher in recent days as hopes that a US-Iran peace deal may be on the horizon have diminished.
The rising prices of crude and diesel fuel have stoked inflation worries and pushed US Treasury yields higher. Fed officials have also indicated more rate hikes might be needed if price pressures fail to moderate after the central bank raised interest rates by 25 basis points this month.
Several key U.S. economic releases are due this week, including the Personal Consumption Expenditures Price Index from the Commerce Department on Wednesday, which could help shape the path of Fed policy. Labour market data, culminating in Friday’s government payrolls report, will be released throughout the week.
“PCE tomorrow is going to be big, so we’ll see where that takes us,” said Tim Ghriskey, senior portfolio strategist at Ingalls & Snyder in New York. “The amount of negativity from consumers here, especially with higher rates, higher gas prices, they’re getting squeezed — the consumers getting squeezed here, and we might start seeing (stocks sell off), at least in the consumer names.”
Higher yields raise the cost of capital and can make bonds an appealing alternative to equities, while also potentially denting corporate earnings power.
The US Labor Department said in its Job Openings and Labor Turnover Survey, or JOLTS report, that job openings, a measure of labor demand, had dropped by 256,000 to 7.079 million in August, below the 7.225 million estimate of economists polled by Reuters.
A separate report from the Conference Board showed US consumer confidence plunged to a nearly 12-1/2-year low in September, with households expecting a deterioration in business and labor market conditions over the next six months amid the Iran war and rising interest rates.
While the Fed’s Williams expressed patience for more rate hikes, other policymakers took a more hawkish stance, with Federal Reserve Governor Michael Barr saying more hikes are likely needed, and Federal Reserve Bank of Chicago President Austan Goolsbee saying that allowing inflation to stay above the Fed’s target for 5-1/2 years is “playing with fire.”
AI-related stocks were in focus as Anthropic’s initial public offering prospectus showed how the AI lab has grown sharply in the last year but also posted wider losses. The company is targeting a US$2 trillion-plus valuation, possibly setting a benchmark for how Wall Street measures AI leaders.
Meta shares advanced 3.3%, even after OpenAI unveiled always-on agents called dots that chase user goals across apps on their own, seen as a competitor to Meta’s newly released Muse.
The Dow Jones Industrial Average fell 131.59 points, or 0.26%, to 51,349.92, the S&P 500 lost 12.85 points, or 0.17%, to 7,670.84 and the Nasdaq Composite lost 22.84 points, or 0.08%, to 26,797.54.
The Toronto Stock Exchange’s S&P/TSX Composite Index ended down 29.59 points, or 0.1%, at 35,460.27, marking its lowest closing level since July 31.
Canada’s gross domestic product was unchanged in July compared to June, matching expectations, while a preliminary estimate showed GDP rising by 0.2% in August.
The data pointed to a “relatively solid” quarterly advance for the economy, Alexandra Ducharme, a senior economist at National Bank of Canada Capital Markets, said in a note.
“This is likely easing some of the Bank of Canada’s concerns about the economy’s ability to withstand trade tensions, which have recently intensified,” Ducharme said.
A US import ban on many Canadian alcoholic beverages, motorcycles and dairy products took effect on Tuesday.
The TSX energy sector fell 1.3% as US crude oil futures settled 3.5% lower at US$89.38 a barrel.
Heavily weighted financials in Toronto were down 0.5%. Technology was a bright spot, adding 1.7%, and the materials group, which includes metal mining shares, added 0.6%. Gold rallied 1.5%, recovering from a more than seven-week low hit in the previous session.
Among other US movers, used-car retailer CarMax climbed 4.7% after reporting increased second-quarter profit and revenue.
Credit scorer Fair Isaac Corp plunged 26.5% after Federal Housing Finance Agency Director Bill Pulte said government-sponsored mortgage enterprises Fannie Mae and Freddie Mac will move to a single pricing grid.
Declining issues outnumbered advancers by a 1.66-to-1 ratio on the NYSE and by a 1.47-to-1 ratio on the Nasdaq. The S&P 500 posted eight new 52-week highs and 33 new lows, while the Nasdaq Composite recorded 34 new highs and 244 new lows.
Volume on US exchanges was 16.15 billion shares, compared with the 16.87 billion average for the full session over the last 20 trading days.
Reuters, Globe staff