Stocks Decline as Wall Street Mulls Fed-Cut Pace: Markets Wrap

Stocks Decline as Wall Street Mulls Fed-Cut Pace: Markets Wrap · Bloomberg
Rita Nazareth
6 min read

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(Bloomberg) -- Stocks saw their first back-to-back decline in six weeks, with traders weighing prospects of a slower pace of Federal Reserve rate cuts. Treasuries stabilized after a selloff that pushed benchmark yields to the highest since July.

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Wall Street pared back bets on aggressive policy easing as the US economy remains robust and Fed officials this week sounded a cautious tone over the pace of future rate decreases. Rising oil prices and the prospect of bigger fiscal deficits after the upcoming presidential election are only compounding the market’s concerns. Since the end of last week, traders have trimmed the extent of expected Fed cuts through September 2025 by more than 10 basis points.

“Of course, higher yields do not have to be negative for stocks. Let’s face it, the stock market has been advancing as these bond yields have bee rising for a full month now,” said Matt Maley at Miller Tabak + Co. “However, given how expensive the market is today, these higher yields could cause some problems for the equity market before too long.”

Meantime, exposure to the S&P 500 has reached levels that were followed by a 10% slump in the past, according to Citigroup Inc. strategists. Long positions on futures linked to the benchmark index are at the highest since mid-2023 and are looking “particularly extended,” the team led by Chris Montagu wrote in a note.

The S&P 500 fell 0.4%. The Nasdaq 100 dropped 0.4%. The Dow Jones Industrial Average slid 0.4%. The Russell 2000 of smaller firms slipped 0.4%. Texas Instruments Inc., which gets almost three-quarters of its revenue from industrial and automotive chips, reports third-quarter results after the market close.

Treasury 10-year yields declined two basis points to 4.17%. Oil gained as traders continued to track tensions in the Middle East between Israel and Iran. Gold hovered near a record high.

A string of stronger-than-estimated data points sent the US version of Citigroup’s Economic Surprise Index to the highest since April. The gauge measures the difference between actual releases and analyst expectations.

Most Fed officials speaking earlier this week signaled they favor a slower tempo of rate reductions. Policymakers at their meeting last month began lowering interest rates for the first time since the onset of the pandemic. They cut their benchmark by a half percentage point, to a range of 4.75% to 5%, as concern mounted that the labor market was deteriorating and as inflation cooled close to the Fed’s 2% goal.

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