U.S. stocks trimmed earlier losses on Wednesday as oil prices pulled back and Treasury yields eased following a strong auction of 10-year government debt.
Wall Street had closed at a record high in the previous session, marking its strongest finish since mid-August.
Investors were also awaiting the release of minutes from the Federal Reserve’s September policy meeting for further clues on the outlook for interest rates.
S&P 500 Cuts Earlier Losses
At 13:06 ET, the S&P 500 was down around 0.2% at 7,800.02 points after falling as much as 0.7% earlier in the session.
The Nasdaq Composite declined roughly 0.4% to 27,492.58 points.
Meanwhile, the Dow Jones Industrial Average fell around 0.6% to 51,195.85 points.
Despite the declines, major indexes recovered from their session lows as pressure from the bond market eased.
Strong Treasury Auction Calms Bond Market
The recent selloff in U.S. Treasuries has become one of the biggest themes across global financial markets.
Bond yields have risen amid concerns about higher inflation from energy prices, heavy government borrowing and increased corporate debt issuance related to artificial intelligence infrastructure.
Investors are also watching tighter central bank policy and worsening fiscal conditions in countries such as France.
Treasury yields moved higher again on Wednesday before a strong auction helped calm the market.
Demand for 10-Year Treasuries Remains Strong
The U.S. Treasury sold $39 billion of 10-year notes during the session.
Although the auction cleared at the highest yield for a 10-year sale since November 2000, demand for the securities was stronger than expected.
The result helped reduce some of the upward pressure on bond yields.
The benchmark 10-year Treasury yield was only slightly higher at around 5.272%.
The 30-year yield rose approximately 1.4 basis points to 5.655%.
Wall Street Remains Resilient
U.S. stocks have remained surprisingly resilient despite the sharp move higher in bond yields.
The S&P 500 lost only around 0.5% in September before beginning October with four consecutive positive sessions.
That rally pushed the index to a new record on Tuesday for the first time since August 13.
The S&P 500 also closed above 7,800 points for the first time.
AI and Earnings Optimism Support Stocks
Several factors have helped support Wall Street despite pressure from the bond market.
Artificial intelligence stocks have regained momentum, while investors are also expecting strong third-quarter earnings from major U.S. companies.
At the same time, weaker economic data and softer inflation figures have reduced expectations for an immediate Federal Reserve rate increase.
Peter Tuz, president of Chase Investment Counsel, said recent stock market strength has largely reflected expectations for strong earnings growth during the third quarter and beyond.
The upcoming earnings season begins next week, with major banks including JPMorgan and Bank of America scheduled to report.
Higher Bond Yields Remain a Risk
Despite the optimistic earnings outlook, higher long-term interest rates remain a concern for investors.
If bond yields continue to rise, some investors could shift money away from equities and into fixed-income assets.
Higher borrowing costs could also increase expenses for companies.
At the same time, rising interest rates can reduce equity valuations because higher discount rates lower the present value of future corporate cash flows.
Federal Reserve Minutes in Focus
Markets are now waiting for the minutes from the Federal Reserve’s September Federal Open Market Committee meeting.
The Fed unanimously raised interest rates by 25 basis points at that meeting, marking its first increase in more than three years.
Updated projections also suggested that additional rate hikes could still occur before the end of the year.
Fed Chair Kevin Warsh said after the decision that returning inflation to the central bank’s 2% target remained a significant challenge.
October Rate Hike Expectations Decline
Since the September meeting, expectations for another rate increase in October have fallen.
More cautious comments from some Federal Reserve officials have contributed to that shift.
Recent personal consumption expenditures inflation data and weaker labor market figures have also reduced expectations for aggressive monetary tightening.
Collin Martin, head of fixed income research and strategy at the Schwab Center for Financial Research, said most Fed officials appear to agree that additional tightening may still be necessary.
However, policymakers remain divided over how quickly rates should rise.
Martin suggested an October hike appears unlikely, although another increase in December remains possible.
Oil Prices Pull Back
Oil prices also gave up much of their earlier advance.
Brent crude futures were last up only around 0.1% at $100.67 per barrel.
Crude prices had rebounded on Tuesday after an initial decline as high transportation costs in the Gulf and shortages of refined products offset optimism over improving Middle East oil supplies.
The pullback in crude prices helped ease some concerns about another inflationary shock.
Earnings Season Moves Into Focus
Beyond interest rates and bond yields, investors are preparing for the start of the third-quarter corporate earnings season.
Major Wall Street banks are expected to lead the reporting cycle next week.
Some companies have already begun releasing results.
Constellation Brands shares reversed earlier losses and gained around 2% after the company reported stronger-than-expected fiscal second-quarter revenue and profit, despite offering a cautious full-year outlook.
Levi Strauss is also scheduled to report results after the market closes.
Investors will be watching whether stronger corporate earnings can continue to support U.S. stocks despite elevated Treasury yields and uncertainty surrounding Federal Reserve policy.
