S&P 500 drops 4.2pc in August; Fed is in focus

Investors await fresh labour-market data as expectations for tighter monetary policy drag shares lower.

Traders working at the New York Stock Exchange at Wall Street in New York City Picture: Angela Weiss/AFP

US stocks fell across the board Wednesday, marking the fourth straight day of declines driven by an expectation of tighter Federal Reserve policy. Major indexes slid between 4 per cent and 5 per cent in August, their worst monthly performances since June.

The S&P 500 dropped 31.16 points, or 0.8 per cent, to 3955, extending its monthly loss to 4.2 per cent. Ten of the S&P 500’s 11 sectors were in the red on Wednesday, with communication services the sole riser on the day, edging up one-hundredth of a per cent.

The Dow Jones Industrial Average fell 280.44 points, or 0.9 per cent, to 31510.43. That pushed the blue-chip index to a 4.1 per cent decline in August. The tech-heavy Nasdaq Composite slipped 66.93 points, or 0.6 per cent, to 11816.20, furthering its monthly rout to 4.6 per cent.

Stocks have come under pressure in the wake of Fed chairman Jerome Powell’s speech at Jackson Hole, Wyoming, where he said interest rates must be raised further until inflation is under control, despite higher recession risk.

“Federal Reserve speakers are stressing that the central bank will not pivot away from tightening anytime soon,” said Quincy Krosby, chief global strategist at LPL Financial. “The question now is how much pain the Fed will deliver, and how long it will take to bring down inflation. The market is trying find an equilibrium with where stocks should be valued based on those expectations.”

New York Fed President John Williams said Tuesday that combating high inflation is likely to require lifting the central bank’s benchmark short-term interest rate above 3.5 per cent and holding it at that level through next year.

The yield on the benchmark 10-year Treasury note inched higher to 3.131 per cent from 3.107 per cent on Tuesday. Shorter-dated yields continue to be higher, sending a recessionary signal. The two-year yield edged lower to 3.448 per cent from 3.466 per cent on Tuesday, which marked its highest level since 2007.

Investors are now turning their eyes to the health of the labour market for a read on the future path of Fed policy, with Friday’s jobs report in focus.

“The August report is important; if wages pressures come down and there are less job openings, that could be a positive catalyst for stocks,” added Ms Krosby.

ADP’s employment report for August, released Wednesday, showed private-sector employers added a lower-than-expected 132,000 jobs, a sign the labour market cooled amid slowing economic growth and recession fears. Economists polled by The Wall Street Journal had expected an increase of 300,000 jobs.

Shares of pet retailer Chewy lost 8.2 per cent after it lowered sales guidance for the year, citing changing consumer habits. Bed Bath & Beyond shares plunged 21 per cent. The retailer and meme stock said it plans to close roughly 150 of its flagship stores, cut its workforce and bring in fresh financing.

Oil prices fell, with global crude benchmark Brent declining 2.8 per cent to $96.49 a barrel. Brent lost 12 per cent in August, marking its worst month since November of last year.

“This is the financial market selling off, it’s the continuation of the bearish macro backdrop,” said Bjarne Schieldrop, chief commodities analyst at Nordic bank SEB. “We have extremely broad based negative sentiment in commodities.”

Overseas, the pan-continental Stoxx Europe 600 fell 1.1 per cent. A data release showed inflation in the eurozone rose to 9.1 per cent in August, notching a record. A major gas pipeline that connects Western Europe to Russia was shut down on Wednesday for maintenance, causing concern that supplies may not resume.

In Asia, major benchmarks were mixed. The Shanghai Composite Index fell 0.8 per cent and Hong Kong’s Hang Seng Index closed flat. China’s official gauge of factory activity remained in contraction in August, although it came in a little higher than economists had forecast.

The Wall Street Journal