U.S. stocks slide to start new month as bond yields rise, manufacturing activity stays weak
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MARKET SNAPSHOT
U.S. stocks started March lower following a rough February, as bond yields rose and data showed that factory activity contracted for the fourth straight month.
How are stock indexes trading
On Tuesday, the Dow Jones Industrial Average fell 232 points, or 0.71%, to 32657, the S&P 500 declined 12 points, or 0.3%, to 3970, and the Nasdaq Composite dropped 11 points, or 0.1%, to 11456. The Dow Jones Industrial Average fell 4.2% in February and is now down 1.5% for 2023.
What’s driving markets
U.S. stocks traded lower Wednesday, after data showed the Institute for Supply Management’s manufacturing survey edged up to 47.7% from 47.4% in prior month but numbers below 50% signal the manufacturing sector is contracting.
The ISM report has been negative for the fourth month in a row, as manufacturers cut back on production to cope with a slower U.S. economy.
Meanwhile, the final number for S&P Global US Manufacturing PMI in February comes in at 47.3, compared with the preliminary number of 47.8.
The data arrived after a tough February for stock markets when worries that stubborn inflation would encourage central banks to keep raising interest rates pushed the S&P 500 down 2.6% and forced 2-year Treasury yields to their highest since 2008.
“I believed since the start of this year that we were likely to see a fair amount of volatility and some retracing of gains, because there would be a lot of uncertainty around the Fed until it actually hits the pause button (for raising interest rates) and that’s what we’ve seen,” said Kristina Hooper, chief global market strategist at Invesco.
“Certainly January was a relatively good month, but at the start of February, we began getting data that made markets question the narrative they had bought into,” Hooper said in a call. “That narrative, of course, was that the Fed would very soon hit the pause button, because the economy was slowing, and inflation was continuing to moderate.”
Minneapolis Federal Reserve President Neel Kashkari said Wednesday that he hasn’t decided whether he will advocate for a 25-basis point or 50-basis point move at the central bank’s next interest-rate committee meeting later this month.
“I’m open minded at this point about whether its 25 basis points or 50 basis points,” Kashkari told business leaders in Sioux Falls, South Dakota.
Still, a fresh month and news that China’s factory activity expanded at its fastest pace in more than a decade were helping to support the sentiment on Wednesday, but also added to concerns that central banks will struggle to control inflation.
Hong Kong’s Hang Seng index jumped 4.2% after the manufacturing purchasing manager’s index for the world’s second biggest economy showed a reading of 52.6 in February, up from 50.1 the month before. The ending of Hong Kong’s mask mandate also lifted sentiment as it illustrated China’s continuing emergence from its COVID lockdown.
London-listed mining stocks were stronger on hopes of more raw material demand from China.
“The COVID crisis is receding rapidly in the rear-view mirror and demand for raw materials to keep factory lines rolling is expected to be brisk. Brent Crude has ticked up on the news heading towards $84 a barrel, amid expectations that industry hunger for energy in China will mount,” said Susannah Streeter, head of money and markets at Hargreaves Lansdown.
However, the sight of firmer energy prices is likely to remind investors that improving economic activity in China may add to inflationary pressures, thereby sending U.S. stock futures lower as the market remains wary of tighter monetary policy.
“Rate hike uncertainty continues to plague the broader market as the Fed rules with an iron fist,” said Stephen Innes, managing partner at SPI Asset Management.
The 10-year U.S. Treasury yield topped 4% Wednesday morning.
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