Wall Street wilts as yields rise ahead of speech by Fed’s Powell

NEW YORK  — Wall Street slumped Thursday, despite a blowout profit report from Nvidia, following some mixed reports on the U.S. economy.

The S&P 500 dropped 1.3 percent for its worst loss in three weeks. It nearly wiped out its gain for the week, which had been a bright spot in what’s been a rough August.

The Dow Jones Industrial Average dropped 373 points, or 1.1 percent, and the Nasdaq composite tumbled 1.9 percent.

Stocks sank as Treasury yields stabilized following their tumble a day earlier. High yields in the bond market have been upping the pressure because they make investors less willing to pay high prices for stocks and other risky investments. They may be set to go even higher, depending on what the head of the Federal Reserve says in a speech scheduled for Friday.

The yield on the 10-year Treasury rose to 4.23 percent from 4.20 percent late Wednesday. It fell there from 4.33 percent a day before, close to its highest level since 2007.

Yields found some traction following a couple mixed reports on the U.S. economy. One showed that fewer U.S. workers applied for unemployment benefits last week. It’s the latest sign that the job market  remains remarkably resilient despite high interest rates.

READ: US job growth slowing, but wage gains remain strong

Another report said orders for long-lasting manufactured goods slumped by more last month than economists expected. That could be a signal that conditions are worsening for the struggling manufacturing industry, but orders actually rose more than expected for the month after ignoring airplanes and other transportation equipment.

For now, weaker-than-expected reports on the economy may counterintuitively be more welcome in financial markets. The economy has managed to avoid a long-predicted recession, but the fear is that it’s so solid that it will keep upward pressure on inflation.

The Federal Reserve has already raised its main interest rate to the highest level since 2001 in hopes of grinding down high inflation. High rates work to do that by slowing the entire economy and hurting prices for investments.

Hope had built that the Fed’s latest rate hike in July may prove to be the last of this cycle, after inflation cooled considerably since peaking above 9 percent last summer. Traders also have made bets for the Fed to begin cutting rates early next year.

READ: After a pause, Fed likely to hike interest rates to 22-year high

But a series of stronger-than-expected reports on the economy has diminished those hopes. That’s why Fed Chair Jerome Powell’s speech on Friday morning is so highly anticipated. He’ll be speaking at an event in Jackson Hole, Wyoming, that has ben the site of major policy announcements in the past by the Fed.

The two-year Treasury yield, which moves closely with expectations for the Fed, rose to 5.01%. A day before, it had dropped to 4.98 percent from 5.05 percent after a report suggested U.S. business activity is cooling in August.

That weaker-than-expected report pushed John Vail, chief global strategist at Nikko Asset Management, to think Powell may not sound as aggressive about keeping rates high.

But he still says Powell “will likely express concerns about inflation not falling fast enough and that the market should not expect any cuts through at least the first part of 2024.”

Thursday’s weakness for stocks came despite a much stronger-than-expected profit report from Nvidia, one of Wall Street’s most influential stocks. That raised hopes that this year’s frenzy on Wall Street around artificial-intelligence technology isn’t just hype.

Nvidia first stunned the market three months ago when it said the quick adoption of AI would send its revenue soaring in the three months through July. Its sales came in even better than forecast, at $12.51 billion, and the company gave a forecast for the current quarter that again blew past Wall Street’s expectations.

READ: Nvidia bets $25B that AI boom is far from over

Nvidia shot up more than 6 percent in the morning and seemed to be headed for a record close. But its gain diminished through the day, and it finished up by just 0.1 percent. It was nevertheless one of the strongest forces pushing up on the S&P 500, which saw more than 80 percent of stocks within it fall.

On the losing end of Wall Street, Dollar Tree fell 12.9 percent despite reporting stronger profit and revenue for the latest quarter than expected. It said customers are shifting their purchases toward products that are less profitable for the company. Like other retailers, it also cited inventory “shrink,” which is a term the industry uses to describe theft and other losses of products.

Petco tumbled 20.6 percent after saying its customers are also feeling pressure. The seller of pet supplies cut its forecast for earnings over the full year, though its results for the latest quarter matched or beat analysts’ expectations.

All told, the S&P 500 fell 59.70 points to 4,376.31. The Dow dropped 373.56 to 34,099.42, and the Nasdaq sank 257.06 to 13,463.97.

In stock markets abroad, indexes were mixed in Europe after mostly rising in Asia.