Stocks fell for a fourth straight day on Wednesday, the last day of August, putting the summer market comeback in doubt as investors weighed the Federal Reserve's inflation-fighting efforts.
The Dow Jones Industrial Average slid 280.44 points, or nearly 0.9%, to 31,510.43. The S&P 500 lost roughly 0.8% to end the day at 3,955.00, and the Nasdaq Composite fell about 0.6% to 11,816.20. The major averages were higher earlier in the day.
What began as a strong month for the three major averages ended on a weaker note. The Dow finished August down nearly 4.1%, while the S&P and Nasdaq posted monthly losses of 4.2% and 4.6%, respectively.
The moves put the Dow and S&P 6.3% and 8.7%, respectively, above their mid-June intraday lows. The Nasdaq is now 11.8% above its low. The summer rally peak came two weeks ago on Aug. 16, a full two months after the mid-June bottom.
Investors had been debating for weeks whether the economy is in a recession or heading toward one, and many thought an economic downturn would give the Fed reason to ease up on its rate hiking plan. Fed Chair Jerome Powell reiterated in his Jackson Hole speech Friday, however, that the central bank is committed to curbing inflation and will continue to raise rates even in a recessionary environment.
"Markets were counting on limited rate increases and quick rate cuts," said Brad McMillan, chief investment officer for Commonwealth Financial Network. "The speech was clear, however, that the increases will be larger, and the cuts more delayed, than anyone expected."
Powell's comments sparked a sell-off in stocks. Further, Cleveland Fed President Loretta Mester said Wednesday that she sees benchmark interest rates rising above 4% by early next year. On Tuesday, New York Fed President John Williams called for "somewhat restrictive policy to slow demand."
Correction: The Dow at one point was down 0.5% on the day. A previous version misstated the decline.
Stocks fall 4% for the month of August
Stocks briefly came off their lows of the day but turned lower to finish a choppy day of trading and the month of August.
The Dow Jones Industrial Average slid 280.44 points, or 0.9%, to 31,510.43. The S&P 500 lost 0.8% to end the day at 3,955.00, and the Nasdaq Composite fell 0.6% to 11,816.20.
All of the major averages finished the month down about 4%.
— Tanaya Macheel
August trading is 'a tale of two halves,' says Goldman’s Hussey
All of the major averages are on pace to finish the month down about 4%. While they're still well off their summer lows from mid-June, the down trend is a stark difference from the first part of the month, when stocks rallied.
"S&P 500 performance for August can be summarized as a tale of two halves," Goldman Sachs analyst Chris Hussey said in a note Wednesday. "Investors developed an appetite for risk assets in the first half of the month on expectations of a potential peak in inflation and an eventual Fed pivot, followed by a steep reversal (and then some) as markets digested Fed Chair Powell's speech which reiterated the FOMC's commitment to bring down inflation and outlined that the FOMC will likely need to maintain 'a restrictive policy stance for some time.'"
"The round-trip suggests that the market might have gotten a bit too far ahead in pricing a Fed pivot, particularly given inflation remains well above its 2% target," he added.
— Tanaya Macheel
Stocks drop lower in the afternoon
Stocks fell lower in the afternoon, erasing gains from earlier in the session.
The Dow Jones Industrial Average slid 185 points, or 0.6%, by 1:50 pm ET. The S&P 500 lost 0.5%, and the Nasdaq Composite fell 0.4%.
The moves came as Wall Street struggled to snap a three-day losing streak and investors continued to weighed inflation-fighting comments from Federal Reserve officials.
— Tanaya Macheel
Stocks could face more headwinds in September, traditionally the worst month for the market
Strategists say stocks could face more turbulence in September, particularly with Federal Reserve rate action hanging over the market.
The S&P 500 has been down 56% of the time in September, since World War II, and it averages a 0.56% decline, according to CFRA. September is the worst month for stocks, but October averages a 0.9% gain. November and December are also positive, on average.
CFRA's Sam Stovall said the S&P could test its June low, but he expects the low to hold. "I'm thinking we need a good shakeout, probably approaching the 3,800 level," he said.
The Fed meets Sept. 20 and 21, and is expected to hike interest rates by as much as 0.75 percentage points.
"The Fed is ultimately going to basically set the stage for what the equity markets are going to do," said Credit Suisse's Patrick Palfrey. For that reason, Friday's jobs report and the consumer price index Sept. 13 will be key. The Fed will evaluate both reports as it weighs the size of its next rate hike.
Small investors embraced the market rally, Wall Street pros didn't, says Ned Davis Research
Institutional investors met the summer market comeback with skepticism, but retail investors "embraced" the upswing, said Ned Davis Research.
Large speculators — mostly hedge funds — have been heavily short, according to CFTC data, said Ed Clissold, the firm's chief U.S. strategist.
However, there has been a sharp increase in optimism among individual investors, according to the American Association of Individual Investors.
Sentiment extremes could be a warning of changes in market direction, he said.
To read the full CNBC Pro story, click here.
— Michelle Fox
Look to the 10-year yield as 'guiding light' for stocks, says Sanctuary's Kilburg
Investors wondering why stocks are falling should look to Treasury yields, specifically the 10-year yield, says Sanctuary Wealth chief investment officer Jeff Kilburg. Now that it's back above 3.1%, stocks "are in price discovery mode," he told CNBC.
The rate on the 10-year was at about 2.6% to start the month of August and is currently above 3.1% on the last day of the month.
"That 10-year note is really, in my opinion, the proper measurement of the short term path," he said. "It continues to be the guiding light."
"In June we saw it popped 3.5%, people were freaking out, selling all the higher beta tech stocks, getting punished because the rates tend to be characteristic of those growth stocks," he added.
Rising rates make future profits, like those promised by growth companies, less attractive. Higher rates are meant to fight inflation by decreasing economic activity. That could hurt earnings growth and it's why the jump in the 10-year has hit the market so hard.
"My forecast was that that was the high print of the yield. We came back down and started the month of August at 2.67%... in the last couple of weeks with expectations for potentially more strict or stringent Fed policy, the 10-year started floating higher and now that we're back above 3.1%."
— Tanaya Macheel
Another squeeze is possible, Deutsche Bank's Binky Chadha says
Investors could be squeezed by another bear market rally, according to Binky Chadha, chief global strategist at Deutsche Bank.
"I would remind that bear market rallies are frequent and large," Chadha said during CNBC's "Squawk on the Street" Wednesday, adding that this is the fourth such rally investors have seen in today's bear market that's failed to reach new highs and preceded losses.
In the two recessions prior to the pandemic, there were many bear market rallies, Chadha noted. That included five each of rallies that bigger than 5% and those that were 14% to 15%.
He also said seasonality is likely to slump in September, but might pick up in October and December.
"September seasonality should be coming in on the downside so I would argue it will basically continue," he said.
Jeffrey Gundlach calls yield curve inversions ‘reliable signals of economic trouble’
DoubleLine Capital CEO Jeffrey Gundlach urged investors to pay attention to the worsening recession signals from the bond market.
In a tweet Tuesday evening, Gundlach pointed to the yield curve inversion that he called "reliable signals of economic trouble," saying investors should "risk manage accordingly."
He previously noted that the inversion of the relationship between two-year and 10-year notes has telegraphed economic downturns four out of the past four times.
— Yun Li
BYD shares drop after Buffett's move
BYD shares plunged more than 12% during Wednesday's session in Hong Kong, becoming the worst performer on the Hang Seng Index, after Warren Buffett's Berkshire Hathaway trimmed its stake in the Chinese electric car maker. The conglomerate slightly reduced its shares from 20.04% to 19.92%, according to a filing on the Hong Kong exchange. Berkshire sold 1.33 million shares of BYD for about $47 million.
— Yun Li
Bed Bath & Beyond shares crater after management reveals new strategy
Bed Bath & Beyond laid out a strategic plan Wednesday, but the details only seem to reinforce that the home goods retailer still has a rough road ahead of it as it attempts to salvage its business. Shares are down nearly 24%.
On the plus side, the company has shored up its liquidity by securing a commitment for $500 million in new financing. But it also said it could offer more stock. While an offering would add much-needed funds to its coffers and help keep its shelves stocked for the holiday season, the offering also dilutes the value of its stock for current investors.
The real test is can Bed Bath & Beyond improve sales. On that front, things don't look good at the moment. The company's second-quarter update showed continued sales erosion, which means it hasn't benefited from a back-to-school sales boost. The company is pivoting back to national brands and abandoning some of its private label products. It also plans to cut staff and stores, which will further hurt its ability to grow sales.
— Christina Cheddar Berk
Seagate Technology falls as company slashes outlook
Shares of Seagate Technology fell 6% in premarket trading after the company lowered its revenue guidance for the current quarter.
The data storage company said it now expects revenue for its fiscal first quarter, which ends on Sept. 30, to fall between $2 billion and $2.2 billion. Seagate previously forecast a range of $2.35 billion to $2.65 billion.
"Since our earnings call in mid-July, weaker economic trends in certain Asian regions have amplified customer inventory corrections and supply chain disruptions. We have also seen more cautious buying behavior among global Enterprise / OEM and certain U.S. cloud customers amid ongoing macro-economic uncertainties," Seagate CEO said Dave Mosley, Seagate's said in a press release.
— Jesse Pound
Robinhood shares slip after Barclays downgrade
Shares of the online trading platform fell 2% in early morning trading after Barclays said the company's near-term outlook looks grim, with increasing competition and mounting regulatory risks.
The firm downgraded Robinhood's stock and reiterated its price target.
Robinhood has shed roughly 48% year to date.
Read more about this call on CNBC PRO.
— Tanaya Macheel
Stocks surprised by Jackson Hole, and volatility can still increase from here, Bank of America says
Jerome Powell's hawkish tone at Jackson Hole last week jolted stocks more than other areas of financial markets, Bank of America analyst Gonzalo Asis said in a note to clients on Wednesday.
"Will we look back at Jackson Hole as the moment when equities woke up to the new Fed? As we expected last week, Powell leaned on the summer rally and looser financial conditions to deliver a very hawkish message. ... Of all major asset classes, equities were the most surprised about his comments, gauging by the jump in equity vol and their vol-adjusted reaction to the speech," Asis wrote.
Stocks have fallen for three straight sessions since Powell's remarks, with the major averages giving up their gains for the month.
Still, the reckoning with the Fed may not be over for stocks quite yet, Asis said.
"As investors return from Labor Day, we believe there is still plenty of room for equity vol to catch up with levels of stress in other asset classes," Asis wrote.
— Jesse Pound
Hiring slowed in August, ADP says in reworked jobs report
Private payrolls for the month of August grew by just 132,000 for the month, down from July's gain of 270,000, ADP said in its monthly payroll report. The Dow Jones estimate for the ADP count was 300,000.
ADP's report had been on public hiatus through the latter part of the summer as the firm adjusted methodology.
— Tanaya Macheel, Jeff Cox
Fed's Mester says no rate cuts through at least 2023
Cleveland Fed President Loretta Mester said Wednesday that she sees the central bank hiking its benchmark rate above 4% and not cutting rates through at least 2023.
"My current view is that it will be necessary to move the fed funds rate up to somewhat above 4 percent by early next year and hold it there," Mester said in prepared remarks for a speech in Dayton.
The Fed's target rate is currently between 2.25% and 2.50%, meaning the central bank would likely need to hike at several more meetings to push that above 4%.
Fed officials have warned markets in recent days that they plan to be aggressive in fighting inflation in the months ahead, even if it causes damage to the economy. Mester, who is a voting member of the Federal Open Markets Committee, is notable among recent speakers for being more explicit with her rate guidance.
"The return to price stability will take some time and a lot of fortitude," Mester said. "There will be bumps along the road. Financial markets could well remain volatile as financial conditions tighten further; growth could slow more than expected; and the unemployment rate could move above estimates of its longer-run level. This will be painful in the near term but so is high inflation."
— Jesse Pound, Jeff Cox
Oil tumbles further, WTI below $90
Oil prices declined again on Wednesday as recession fears weigh on commodity prices broadly.
West Texas Intermediate crude, the U.S. oil benchmark, slid 2.6%, or $2.37, to $89.27 per barrel. The contract is now down more than 4% for the week. International benchmark Brent crude declined 3.3% to $96.
"Sentiment was weighed down by fears that global oil demand will be hit as major central banks hike rates to fight inflation and economies slide towards recession," said PVM's Stephen Brennock.
— Pippa Stevens
Mortgage demand pulls back again
Mortgage demand pulled back further as rates began rising sharply again. Total mortgage application volume fell 3.7% last week from the previous week, according to the Mortgage Bankers Association's seasonally adjusted index. Volume was 63% lower than the same week one year ago. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($647,200 or less) increased to 5.80% from 5.65%.
— Yun Li, Diana Olick
Bed Bath & Beyond falls after filing to sell more shares
Shares of Bed Bath & Beyond sank more than 14% in premarket trading after the troubled retailer filed to sell an undisclosed amount of stock in the future.
Bed Bath & Beyond's filing says that the company may sell more common stock in one or more offerings. The company said it would use any proceeds for general purposes, including paying down its debt.
Shares of Bed Bath & Beyond surged earlier this month in an apparent revival of the meme stock retail trading phenomenon, but the stock gave much of those gains after investor Ryan Cohen dumped his entire stake in the company.
— Jesse Pound
HP Inc falls after mixed quarterly results, disappointing guidance
Shares of HP Inc dropped more than 6% in the premarket after the PC maker posted mixed results for the previous quarter and issued weaker-than-expected guidance.
The company earned $1.04 per share in the previous quarter, in line with a Refinitiv forecast. HP's revenue, however, came in below expectations at $14.66 billion.
For the current quarter, HP sees earnings per share between 79 cents and 89 cents, well below a StreetAccount estimate of $1.05. Its full-year earnings guidance is also below consensus.
European markets make a choppy start
European markets were choppy on Wednesday, eventually aligning with a negative trend in Asia-Pacific markets overnight and after Wall Street's losing streak stretched into its third day.
The pan-European Stoxx 600 was down 0.5% by mid-morning, having given back opening gains of a similar scale. Utilities fell 1.4% while basic resources added 1%.
Market jitters have been prevalent since Friday after hawkish remarks from Federal Reserve Chair Jerome Powell. On Tuesday, New York Fed President John Williams called for a "somewhat restrictive policy to slow demand."
- Elliot Smith
CNBC Pro: What poses the biggest risk to stocks? Wall Street is watching these indicators closely
What could drive the next leg down for stocks? Morgan Stanley and Wolfe Research have identified a number of indicators they expect to determine market moves looking ahead.
— Weizhen Tan
CNBC Pro: Morgan Stanley names 3 EV stocks to cash in on Beijing's auto sector boost
China's government is striving to boost auto sales, and this is likely to benefit electric vehicles more than their petrol-based counterparts, according to Morgan Stanley.
"While China braces for its slowest quarterly economic growth in two years, the car industry is benefiting from multifaceted stimulus offered by central and local governments," the bank's analysts said in a note this month.
They named three buy-rated stocks they expect to get a boost from the measures.
Pro subscribers can read more here.
— Zavier Ong
The S&P 500's June low should hold, says Charles Schwab's Frederick
Charles Schwab's Randy Frederick believes the low made in June should hold despite the continuation of last week's sell-off.
From June's trough to August's peak, the S&P 500 bounced more than 17%.
Given the size of that bounce, the managing director of trading and derivatives said he'd be surprised if markets took out that low — although "anything can happen." That said, volatility will persist in the near term as rate hikes from the Federal Reserve continue.
"That's a pretty impressive rally," Frederick said. "It would be very rare to give all of that back because it just doesn't happen very often."
— Samantha Subin
Chewy shares slide on revenue miss, weak guidance
Shares of Chewy tumbled more than 9% in extended trading after the company shared a weak forecast for the third quarter and full year as customers trim discretionary spending.
The online pet products retailer posted a slight revenue miss but a surprise profit of 5 cents a share, compared to expectations of an 11-cent loss.
— Samantha Subin
Major averages on pace for month of losses
As of Tuesday's close, all the major averages were on pace to close out the month with losses.
Both the Dow Jones Industrial Average and the S&P 500 are on track for their second negative month in three, while the Nasdaq Composite is on course for its fourth negative month in five.
Here's where the major averages stand:
- Down 3.2% this month, 12.5% this year
- 14% off its 52-week high
- Down 3.5% this month, 16.4% this year
- 17.3% off its 52-week high
- Down 4.1% this month, 24.05% this year
- 26.7% off its 52-week high
— Samantha Subin
Stock futures open flat
Stock futures opened flat in overnight trading Tuesday after the sell-off on Wall Street continued into its third day. Futures tied to the Dow Jones Industrial Average, S&P 500 and Nasdaq 100 inched 0.03%, 0.07% and 0.03% lower, respectively.
— Samantha Subin