Stocks finished lower Wednesday, while Treasury bond yields fell sharply, as investors looked to extend the S&P 500's four-day losing streak amid growing concerns for a near-term recession pared with a hawkish Federal Reserve and slowing corporate earnings.
The S&P 500 benchmark closed below 4,000 mark Tuesday night, extending its four-day decline to around 3.7%, as big bank CEOs warned of an impending U.S. slowdown and interest rate traders continued to price in more Fed rate hikes, and a marginally higher terminal level, following data earlier this week that suggested price pressures remain deeply imbedded in the world's biggest economy.
The CME Group's FedWatch continues to suggest next week's rate move will be a 50 basis point rate hike, taking the Fed Funds benchmark to between 4.25% and 4.5%, with betting on a terminal rate of between 5% and 5.25% by spring largely cemented in futures trading.
That hawkish tilt, however, could tip the economy into recession as global headwinds from China and elsewhere combine with slowing domestic investment and a pullback in consumer spending linked to a weakening job market.
"The Fed has been crystal clear on its intentions to slow the economy in order to cool inflation and it's unwise to fight it at this point," said Ryan Belanger, founder and managing principal at Claro Advisors.
"The stock market has real competition now with bond yields on the rise, so for investors still looking to put money to work in the stock market, strong businesses with profits and cash flows matter now more than ever,' he added. "Short-term US Treasuries and dividend paying stocks are great places to park money during recessionary environments. It's important for investors to be paid when riding out economic headwinds.
Bond yields, which have been flashing recession warnings for several months, continue to signal that same risk, with benchmark 2-year Treasury note yields trading at 4.260%, some 84.5 basis point higher than 10-year notes yields.
The gloomy prognosis, expressed by several big bank CEOs -- including JPMorgan's Jamie Dimon -- during an investment conference in New York yesterday, added to bids for the safe-haven greenback in overnight trading, taking the U.S. dollar index to 105.662, although that momentum faded in New York trading hours.
Fading demand bets have oil prices on the back foot, as well, with Brent crude contracts for February delivery, the global benchmark, closing below $80 a barrel last night for the first time since January. WTI futures for January were marked $2.08 lower higher in late New York trading at $72.17 per barrel.
On Wall Street, the S&P 500 finished down 0.19%, while the Dow Jones Industrial Average ended flat at 33,596. The tech-heavy Nasdaq lost 0.51%.
Global stocks were also moving lower thanks to the new U.S. pessimism, with Beijing's further loosening of Covid restrictions brushed aside amid the weaker close on Wall Street and data the biggest year-on-year decline in China exports since February of 2020 last month.
The region-wide MSCI ex-Japan index was marked 1.57% lower heading into the close of trading, while Japan's Nikkei 225 fell 0.72% to close a four-week low. Europe's Stoxx 600 closed 0.43% lower in Frankfurt.
