U.S. stocks moved lower on Wednesday, giving back ground after the Nasdaq touched a record high earlier in the week. Treasury yields jumped across the board after a stronger-than-expected reading on business activity, while a rebound in oil prices added to worries that inflation will stay stubborn. The combination revived concerns that the Federal Reserve may need to keep raising interest rates, and selling was broad, with more than 70% of U.S. issues finishing in the red.
What Moved Markets
The major averages spent the entire session in negative territory and closed near their lows of the day. The Dow Jones Industrial Average fell 352.10 points, or 0.68%, to 51,511.59. The S&P 500 slid 58.61 points, or 0.75%, to 7,706.03, while the tech-heavy Nasdaq Composite lost 308.24 points, or 1.13%, to 26,936.04. Smaller companies were hit even harder, with the Russell 2000 dropping 1.77%.
The main catalyst was S&P Global’s flash purchasing managers’ index (PMI), a monthly survey that measures whether business activity is expanding or contracting. The composite reading rose to 58.4 in September, the strongest pace since July 2021, with both manufacturing and services accelerating. While a strong economy is normally good news, the report also showed input prices rising at their fastest rate since 2022, driven by fuel, transport and wage costs. That raised concerns that price pressures are not cooling fast enough for the Fed.
Bond investors reacted quickly. The five-year Treasury yield topped 5% for the first time since 2007, and the 10-year yield climbed to around 5.1%, also its highest level since 2007. Higher yields make borrowing more expensive and tend to weigh most heavily on growth stocks and on dividend-paying sectors such as utilities and real estate, which were among the day’s weakest groups. Energy was the only S&P 500 sector to finish higher as crude prices moved up, helped by a fresh supply disruption in Libya. Investors are also watching diplomatic talks between the U.S. and Iran, with Tehran denying reports that it had dropped its conditions for reopening the Strait of Hormuz.
Notable Movers
McDonald’s (MCD) was one of the day’s most notable decliners, falling roughly 4% to a four-year low after its Investor Day. The company unveiled an $8.5 billion franchisee support plan running through 2036, but CEO Chris Kempczinski cautioned that persistent inflation and flat customer traffic are likely to keep pressuring the restaurant industry.
Cracker Barrel (CBRL) bucked the trend, rallying sharply after reporting fiscal fourth-quarter adjusted earnings of 99 cents per share, well above the 26 cents analysts expected. Revenue also topped estimates, and the company issued a fiscal 2027 outlook calling for comparable-store restaurant sales growth of 3% to 5%.
IonQ (IONQ) climbed after the quantum computing company demonstrated what it called the industry’s first end-to-end real-time quantum error correction decoder, which runs on a single standard CPU. The news lifted other quantum computing names as well.
AppLovin (APP) moved lower after an analyst at Edgewater Research warned that the mobile advertising platform’s market share gains have stalled, while Instacart parent Maplebear (CART) gained after announcing a partnership that brings delivery service Gopuff onto the Instacart Marketplace.
Looking Ahead
With yields at multi-decade highs, investors will be closely watching the bond market and upcoming comments from Federal Reserve officials, who are making numerous appearances this week, for clues on the path of interest rates. Oil prices and any progress in U.S.-Iran talks remain key swing factors for inflation expectations. Traders will also keep an eye on Chinese President Xi Jinping’s state visit to Washington, as well as additional economic data and earnings reports later in the week.