U.S. stocks and government bond prices fell on Wednesday, dampening a rally fueled by bargain-hunting investors and weak economic data easing fears about rising interest rates.
The broad S&P 500 was down 0.9% at midday in New York, after completed previous session up 3.1 percent. The tech-heavy Nasdaq Composite fell 1.3%. In Europe, the regional Stoxx 600 closed down 1%.
Tuesday’s moves had taken the S&P’s two-day lead to 5.7% – its biggest such rise since the depths of the coronavirus pandemic in spring 2020 – as some analysts and investors identified opportunities to trading after three consecutive quarters of losses.
Gains had accelerated after the publication of lower than expected US labor market data released on Tuesday shows the number of job vacancies in the world’s largest economy fell in August to 10.1 million, below economists’ forecast of 10.8 million and the previous month’s figure of 11.2 million.
Jobs reports have been closely watched as an indicator of how much and how quickly the US Federal Reserve will tighten monetary policy to curb inflation, with stronger data prompting expectations for more aggressive action and weaker numbers easing concerns about the magnitude of future rate hikes.
Tuesday’s figures were “the first official indicator indicating unambiguously, if not necessarily reliably, a marked slowdown in [labour] demand,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics.
Concerns have intensified in recent months that the Fed and its peers will raise borrowing costs to such an extent that they worsen an economic downturn.
But even as signs of a slowing jobs market ease expectations for a rate hike, Hani Redha, global multi-asset portfolio manager at PineBridge Investments, warned: “The magnitude of the squeeze means that we will see a continued deceleration that will most likely push us into a recession anyway.
Redha said the stock market’s gains over the past two days could be a “bear market rally,” when stocks briefly rally during a longer period of decline.
“As a bear market progresses, the rallies intensify,” he added. “You need more and more volatility for . . . washing long positions [before a more sustainable recovery begins].”
In debt markets, the yield on the 10-year US Treasury added 0.16 percentage points to 3.78% as its price fell sharply. UK bonds also came under pressure, with the gilt equivalent yield rising 0.16 percentage points to 4.03%.
The gilts had convulsed last week in response to Westminster’s ‘mini’ budget as investors worried about new Chancellor Kwasi Kwarteng’s proposed tax cuts and sweeping borrowing plans. Selling pressures only eased when the Bank of England stepped in to calm the turbulence last Wednesday, pledging to buy long-term bonds.
The pound fell 1.8% to trade at $1.127, following Liz Truss’ Conservative Party conference speech in which she sought to reassure markets of her commitment to fiscal discipline.
Asian shares followed U.S. stocks higher on Wednesday, with the Hang Seng index closing up 5.9% on its reopening after a public holiday.