Stock market today: Wall Street looks to cap May gains as bond yields continue to rise

NEW YORK (AP) – U.S. stocks fall under the weight of higher bond market yields on Wednesday.

The S&P 500 fell 0.6% in afternoon trading, further down from the record it set last week. It reduces gains for May, which was expected to be the best month in six years, and almost 90% of the index’s stocks fall.

The Dow Jones Industrial Average fell 391 points, or 1%, as of 2:45 p.m. EST, and the Nasdaq fell 0.4% a day after setting its latest all-time high.

American Airlines Group sent airline shares tumbling after lowering earnings forecasts and other financial targets in the spring. It said fuel costs may be slightly lower than previously thought, but this is also likely to be a significant revenue trend. It was also announced that commercial director Vasu Raja was leaving the company. He lost 14.7%.

ConocoPhillips fell 3.9% after it said it would buy Marathon Oil in an all-stock deal valuing the company at $22.5 billion, including $5.4 billion in net debt. This is the latest big deal for an industry that has seen several buyout announcements recently. Marathon Oil increased by 7.8%.

FILE – A person looks at an electronic stock board showing Japan’s Nikkei 225 index at a securities firm in Tokyo, May 27, 2024. Asian stocks fell mostly on Wednesday, May 29, 2024, after a mixed session on Wall Street following the three-day holiday weekend . (AP Photo/Eugene Hoshiko, file)

Photo: ASSOCIATED PRESS/Eugene Hoshiko

Advance Auto Parts fell 9.8% after last quarter’s results and revenues topped analyst expectations. The retailer said the industry started the year slower than expected.

Another rise in long-term Treasury yields also weighed on the stock market, with the 10-year Treasury yield rising to 4.61% from 4.54% late Tuesday after an auction of $44 billion in seven-year Treasury bonds. There are growing concerns that demand from buyers of government bonds at such auctions will help boost yields.

The 10-year bond yield remains low this month but has been slowly rising since dipping below 4.40% in mid-May.

Higher Treasury yields negatively impact the prices of all types of investments and could hit utility stocks particularly hard. When bonds pay higher interest rates, they can scare away income-seeking investors who would otherwise buy these stocks in exchange for relatively large dividends. Utilities in the S&P 500 fell 1.4% as a group, one of the worst losses in the index.

Treasury yields also fluctuated this month as investors recalibrate their expectations about when the Federal Reserve might begin cutting its key interest rate, which is at its highest level in more than two decades.

Wall Street always wants interest rate cuts because they can raise investment prices and remove downward pressure on the economy. However, investors have had to delay their overly optimistic forecasts of interest rate cuts several times this year as inflation has proven stubborn to suppress completely.

The Fed tries to balance the effect of weakening the economy with high interest rates enough to fully control inflation, but not so much that it leads to widespread layoffs.

The Fed’s report released Wednesday said it heard from businesses and other contacts across the country that consumers oppose further price increases. This, in turn, eats into corporate profits as their own insurance costs and other expenses continue to rise.

Despite concerns about cracks in spending by U.S. consumers, especially those with lower incomes, economists at BNP Paribas expect a healthy labor market, slowing inflation and even gains by some cryptocurrency investors to help sustain the economy’s main engine.

“The American consumer has defied the severity of high interest rates and inflation” as well as concerns about an uncertain economy, according to Yelena Shulyatyeva, senior U.S. economist at BNP Paribas.

The U.S. stock market continues to set records despite concerns about continued high interest rates, partly due to the continued rally in shares of companies related to artificial intelligence technology. Nvidia’s latest report of huge profits helped fuel the frenzy even more, but the momentum can’t last forever. The company’s shares fell in morning trading before rising 1.1%, which would be its weakest performance since its earnings report a week ago.

On the winning side of Wall Street was Dick’s Sporting Goods, which rose 16% after beating analysts’ earnings and revenue expectations in the latest quarter. The retailer also raised its profit forecast for the full year.

Chewy, the online pet supplies retailer, also reported a bigger-than-expected profit for its latest quarter, with its stock rising 26.1%. It also said it would return up to $500 million to its shareholders by buying back its own shares.

On foreign stock exchanges, indexes fell mainly in Asia and Europe. Hong Kong’s Hang Seng fell 1.8%, South Korea’s Kospi fell 1.7% and France’s CAC 40 fell 1.5%.

Stock markets in Shanghai remained roughly flat after the International Monetary Fund raised its forecast for China’s economic outlook, saying the No. 2 economy will grow at an annual rate of 5% this year. However, she also cautioned that consumer-friendly reforms were needed to maintain strong, high-quality growth.

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AP business writers Yuri Kageyama and Matt Ott contributed.