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Wall Street stocks snap powerful rally

Wall Street stocks fell on Wednesday, putting a halt to a strong investor-fueled rush to buy stocks as cheap and weak economic data eased concerns about an interest rate hike.

The broad S& P 500 fell 1% after the opening bell, after ending the previous session 3.1 percent higher. The Nasdaq, which is heavily weighted toward technology, fell 1.5%. The Stoxx 500 index in Europe fell 0.9 percent.

Tuesday’s moves increased the S& P 500’s two-day gain to 5.7 percent, the strongest such rally since the depths of the coronavirus pandemic in the spring of 2020, as some analysts and investors sought out bargains after three consecutive quarters of losses.

Gains resumed following the release of weaker-than-expected US labor market data on Tuesday, which showed that the number of job vacancies in the world’s largest economy fell in August to 10.1 million, falling short of economists’ expectations of 10.8 million and the previous month’s figure of 11.2 million.

The job reports have been closely watched as an indicator of the extent and speed with which the US Federal Reserve will tighten monetary policy to combat inflation, with stronger data raising expectations for more aggressive action and weaker data assuaging concerns about the scope of future interest rate hikes.

According to Ian Shepherdson, chief economist at Pantheon Macroeconomics, Tuesday’s figures were “the first official indication to unequivocally, if not necessarily reliably, indicate a clear slowdown in [labor].”

Concerns have grown in recent months that the Federal Reserve and other central banks will raise borrowing costs to the point of exacerbating the economic slowdown.

Despite signs that the job market is cooling, Hani Reda, global multi-asset portfolio manager at PineBridge Investments, warned that “the scope for tightening means we will see a sustained slowdown that is very likely to lead us into recession anyway.”

The stock market’s gains in the last two days, according to Reda, could be “the rise of a bear market,” in which stocks recover briefly during a longer period of decline.

“As the bear market advances, so do the rallies,” he added. “It requires increasing volatility… Wash long positions [before beginning a more sustainable recovery]”.

British government bonds were hit by a new wave of selling in government bond markets, with the 10-year yield rising 0.14 percentage points to trade above 4%. The two-year policy-sensitive yield increased by 0.15 percentage points to 4.05 percent.

Last week, the gold market trembled in response to Westminster’s “mini” budget, as investors panicked over the new chancellor’s proposed tax cuts and massive borrowing plans. Only when the Bank of England intervened to calm the turmoil did selling pressure ease.

Other bonds suffered as well, with the 10-year US Treasury yield rising 0.11 percentage point to 3.73 percent.

The dollar rose 1% against a basket of six currencies after falling in recent days as US borrowing costs expectations and stock markets recovered. ING strategists are “skeptical that the Fed is about to turn around on the back of softer US data this week.”

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