S&P and Nasdaq weak as manufacturing stokes Fed concerns

NEW YORK, March 1 (Reuters) – The S&P 500 and Nasdaq fell for a second straight session on Wednesday as Treasury yields jumped after manufacturing data indicated inflation is likely to remain stubbornly high, while comments Federal Reserve policymakers supported hawkish policy.

The yield on 10-year bonds rose above 4% for the first time since November, hitting a high of 4.01%, after the Institute for Supply Management (ISM) survey showed US manufacturing sagging. was contracted in February and commodity prices rose last month.

After the data was released, the two-year US Treasury yield, which generally moves in line with interest rate expectations, gained on the day after hitting 4.904%, its highest since 2007. It rose last down 8.4 basis points to 4.881%.

“You could see the market got a bit worse, yields started to move higher after that February ISM manufacturing report. The prices paid component, which really jumped up, snapped a four-month streak of falling prices,” said Anthony Saglimbene, chief market strategist at Ameriprise Financial in Troy, Michigan, referring to the ISM index of manufacturing prices which is considered an inflation indicator.

“It’s just another piece of evidence we’ve seen over the past two weeks that inflation remains more rigid than most people thought in January,” he said, adding that he was likely that the Fed would raise rates.

Saglimbene added that the bond market has recently indicated there’s a better chance the Fed could move the terminal rate somewhere near 6%.

The Dow Jones Industrial Average (.DJI) rose 5.14 points, or 0.02%, to 32,661.84, the S&P 500 (.SPX) lost 18.76 points, or 0.47%, to 3,951.39 and the Nasdaq Composite (.IXIC) fell 76.06 points, or 0.66%, to 11,379.48.

The Dow Jones remained near the unchanged bar as shares of Caterpillar (CAT.N) rose 3.81% after the construction equipment maker announced it had reached a tentative agreement with a union which represents workers at four of its facilities.

Fed funds futures showed traders adding to bets that the US central bank will raise its benchmark rate to a range of 5.5% to 5.75% by September, compared to the range current from 4.5% to 4.75%.

Further fueling concerns about the central bank’s aggressiveness, Minneapolis Fed Chairman Neel Kashkari, a 2023 rate-setting committee voter, said he was “open-minded” about a hike. rates of 25 or 50 basis points in March. Atlanta Fed President Raphael Bostic said in an essay that while a federal funds rate of between 5% and 5.25% would be adequate, the policy should remain tight “through 2024” until that inflation is clearly falling.

After a strong January, major U.S. benchmarks stumbled in February on rising expectations that the Fed would hike rates more than initially thought as segments of the economy such as the labor market remain tight, while inflation has not come down as quickly as expected.

Monthly U.S. payrolls and consumer price data in the coming days will further help investors gauge the path of rates ahead of the March 21-22 meeting, when the Fed is expected to hike rates by 25 bps. basic.

The Energy (.SPNY) and Materials (.SPLRCM) sectors were among the session’s few winners as commodity prices rose after data showed China’s manufacturing activity s is growing at the fastest pace in more than a decade as the country continues to leave its COVID-19 restrictions behind.

Tesla Inc (TSLA.O) slid 1.43% ahead of its investor day. The electric carmaker is preparing a production overhaul of its best-selling Model Y, Reuters reported, citing people familiar with the plan.

Novavax Inc (NVAX.O) plunged 25.92% after the COVID-19 vaccine maker raised doubts about its ability to stay in business and announced plans to cut spending as it prepares for a vaccination campaign in the fall.

Volume on U.S. exchanges was 11.00 billion shares, compared to an average of 11.39 billion for the full session over the past 20 trading days.

Falling issues outnumbered rising ones on the NYSE by a ratio of 1.32 to 1; on the Nasdaq, a ratio of 1.29 to 1 favored the decliners.

The S&P 500 posted 9 new 52-week highs and 13 new lows; the Nasdaq Composite recorded 79 new highs and 114 new lows.

Reporting by Chuck Mikolajczak; Editing by Aurora Ellis

Our standards: The Thomson Reuters Trust Principles.