Rates are so high because the Federal Reserve has yanked them up at the fastest pace in decades in hopes of getting high inflation under control. High rates do that by putting the brakes on the entire economy and hurting prices for stocks, bonds and other investments. That has many investors bracing for a recession even if Congress reaches a deal on the debt limit.
Traders are hopeful just one more hike may be on the way this summer, if any at all. Federal Reserve officials were divided earlier this month on whether to pause their interest rate hikes at their upcoming meeting in June, according to the minutes of their May 2-3 meeting.
Helping to limit Wall Street’s losses were several companies that reported stronger results for the start of the year than analysts expected.
Kohl’s jumped 6.3 per cent after reporting a surprise profit for its latest quarter, helped in part by momentum at its Sephora beauty shops. Analysts had expected it to turn in a loss.
Resilient spending by US consumers has helped to keep the economy out of a recession even as manufacturing and other areas struggle with higher interest rates. With the job market remaining solid, economists at Goldman Sachs said they expect consumer spending to remain a source of strength for the economy through this year.
Homebuilder Toll Brothers rose 1.5 per cent after reporting much better results than analysts expected for the latest quarter.
Most companies have been topping expectations for the first quarter of the year, but much of that is because analysts set the bar particularly low. S&P 500 companies are still on track to report a second straight quarter of weaker profits from year-ago levels.
That has Wall Street focused even more on what companies say about their future prospects than how they performed over the past several months.
Agilent Technologies tumbled 6.9 per cent despite reporting stronger profit and revenue for the latest quarter than analysts expected. It cut its forecasts for earnings and sales for the full fiscal year and said the market has become increasingly challenging.
Analog Devices fell 8.2 per cent despite also reporting stronger profit and revenue for the latest quarter than expected. It gave a forecast for earnings in the current quarter that fell short of analysts’ expectations.
Also on the losing side was Intuit, which fell 7.3 per cent. The company behind TurboTax reported weaker revenue than expected for the latest quarter.
In the bond market, the yield on the 10-year Treasury rose to 3.71 per cent from 3.70 per cent late Tuesday. It helps set rates for mortgages and other important loans.
The yield on the two-year Treasury, which moves more on expectations for Fed action, fell to 4.32 per cent from 4.33 per cent.