Stocks sold off Wednesday, continuing the sluggish start to September, as concerns mounted that the Federal Reserve may not be done hiking interest rates.
Pressured by rates, technology stocks underperformed, with the tech-heavy Nasdaq notching a third straight day of losses. The biggest laggards included Nvidia and Apple, dropping more than 3% each. Along with Apple, Amgen and Boeing fell about 2% each, weighing on the Dow.
Wednesday's rise in Treasury yields coincided with stronger-than-expected economic data that fueled some concern over the likelihood of further hikes. Recent readings on both the services and manufacturing sectors of the U.S. economy show that prices are moving in the wrong direction.
"The ISM reinforced all the concerns that have been bedeviling stocks for weeks – higher yields undercut stock valuations, robust growth [and] sticky inflation keep pressure on the Fed, healthy growth gives a further bid to oil," said Vital Knowledge's Adam Crisafulli in a Wednesday note.
The prices component of the ISM services index rose 2.1 percentage points to 58.9% in August, representing the share of companies reporting increases as well a four-month high.
That follows the prices component of the ISM manufacturing index jumping 5.8 points to 48.4%. While readings below 50% represent contraction in the ISM survey, the big one-month jump is a reversal from the recent trend. The prices paid component rose slightly more than expected, further fueling rate hike fears.
Following the services report, the probability that the Federal Reserve will raise interest rates in November increased. As of Wednesday afternoon, traders are pricing in a greater than 40% probability of a hike in November and a 93% chance that the central bank holds rates steady this month, according to the CME Group.
"Even though we keep hearing that we'll probably be in just a soft patch and not a recession, the more negative news that we get about the economy, the more I think people worry that we could actually fall into a recession," said CFRA Research's chief investment strategist Sam Stovall.
Elsewhere, the latest Beige Book from the Fed indicated that the U.S. economy saw modest growth from in July and August, and slowing price growth.
Earlier in the day, Boston Fed President Susan Collins said the central bank can "proceed cautiously" on more rate hikes, but indicated that "further tightening would be warranted" depending on the data.
— CNBC's Jeff Cox contributed reporting
Dow drops nearly 200 points, Nasdaq slumps more than 1%
Ken Griffin’s Citadel posted a strong August as broader market tumbled
August was a painful month for the broad market, but Ken Griffin's Citadel hedge fund came through with gains.
Citadel's multi-strategy fund posted a more than 2% gain last month, and it's up 10.8% in 2023 through August, a person familiar told CNBC. The long-short equities fund also jumped more than 2% in August, and advanced 9.5% this year, the source said.
The S&P 500, meanwhile, was off about 1.8% in August.
Steve Cohen's Point72 is also up nearly 7% in 2023, while D.E. Shaw's composite fund is up about the same amount this year through Aug. 25, sources familiar told CNBC. Citadel, Point72 and D.E. Shaw declined to comment
— Leslie Picker, Darla Mercado
Apple shares head for worst day in more than a month
Apple shares are poised to post their worst day in more than a month.
The big-technology stock slid 4.2% in Wednesday's session. If that holds through close, it will mark the stock's worst performance since Aug. 4, when shares dropped 4.8%.
— Alex Harring
Apple's hardware event can mean good news, CFRA predicts
Apple's hardware event should have positive implications for the technology giant, according to CFRA.
Analyst Angelo Zino said to expect 5% growth in the iPhone 15 cycle when thinking conservatively. While they aren't expecting price hikes, Zino said there's a 50% probability that the company could increase the price for it Pro devices, which would in turn drive upside to iPhone revenue estimates.
"We believe the iPhone Pro devices will further separate themselves from AAPL's standard phones," Zino said.
Apple shares have had a strong year, up more than 40% in 2023.
— Alex Harring
Loop Capital increases price target on T.J. Maxx, highlights strong sales
Loop Capital is growing more bullish on retailer T.J. Maxx, on the heels of both better brands in store as well as "lean clearance inventory."
The firm increases its price target on T.J. Maxx stock to $105 from $100 in a Tuesday note.
"We think TJX may be best-positioned given its better brands to see more young trade-down customers now that they're repaying student loans again," analyst Laura Champine said. "We recommend that investors buy TJX even into strength as we see further upside potential in F2H."
— Brian Evans
Bernstein prefers off-price retailers amid resumption of student loans
Bernstein isn't expecting the resumption of student loan payments to make a big dent in consumer spending, with the low-income consumers impacted the least thanks to their lower levels of student debt and potential debt relief, the firm said in a note Wednesday.
Discretionary spending on things like apparel will be hit harder than others, said analyst Aneesha Sherman. In this environment, she likes off-price retailers. The sector is already set up amid modest guidance and improving macro circumstances for low-income shoppers, Sherman said.
"Adding in student loans, the core low-income shopper is protected by debt relief … while the middle-income shopper may trade into off-price to get more value for Back-to-school, Halloween, Black Friday and Christmas shopping occasions, so we think the impact will be negligible or possibly even positive," she said.
— Michelle Fox
Wednesday's price action consistent with 'good news is bad news' narrative, says Goldman's Hussey
Wednesday prices action isn't shocking given the recent dynamic that's overtake Wall Street in recent months, Goldman Sachs' Chris Hussey.
The action is "characterized by elevated sensitivity to economic data, with equity markets seemingly adopting a 'bad news is good news' view, rallying on weak growth data, and selling off on strong data— amid fears that too strong data will increase the risk of an additional rate hike," he wrote in a Wednesday note.
The Wall Street firm anticipates a pause in rate hikes at the Federal Reserve's September policy meeting, although a skip in November would heighten the "hurdle for re-starting the cycle," Hussey said.
"However, we think Fed officials are unlikely to move quickly into a rate cutting cycle unless growth slows more than we are forecasting in the coming quarters, and we expect only very gradual cuts of 25bp per quarter starting in 2Q24," he said.
— Samantha Subin
Baird upgrades AeroVironment to outperform
Further upside could be in sight for defense contractor AeroVironment amid a rise in demand, according to Baird.
Analyst Peter Arment upgraded the stock to outperform in a Wednesday note.
Shares jumped more than 21% on the back of the company's strong fiscal first quarter results. Late Tuesday, AeroVironment posted an earnings and revenue beat, as well as a surge in order activity.
To read the full story, click here.
— Hakyung Kim
Chewy gets upgrade from Argus Research
Argus analyst Kristina Ruggeri upgraded pet food and supplies e-retailer Chewy to buy from hold. She issued a $30 price target, implying shares could jump 22.9% from where they closed on Tuesday.
Shares were little changed Wednesday, but the stock has lost more than 30% so far this year.
"While Chewy may face weak economic conditions and substantial investment spending in the near-term, we expect its expansion into higher-margin products and services, where the company has been gaining market share, to help offset pressure on earnings," Ruggeri said in a Wednesday note. "We believe that the recent pull-back in the shares presents a buying opportunity."
Since its IPO in 2019, Ruggeri noted that Chewy's revenue has nearly tripled to $10 billion and its gross margin has expanded by 800 basis points to 28%. The company is now expanding into high-margin businesses like pet medications, pet insurance and sponsored ads, she noted.
The firm has a positive view of Chewy's focus on non-discretionary pet products and services, which make up over 80% of the company's revenue. Argus also likes Chewy's autoship delivery service, which comprises 75% of company revenue through its sales and "provides predictable income," Ruggeri said.
— Pia Singh
HSBC initiates buy rating on Amgen
Amgen has a promising growth outlook despite facing a "substantial patent cliff," according to HSBC.
The firm initiated coverage on the drug treatment developer with a buy rating.
Amgen is set to lose exclusivity on patents for drugs that make up about three-quarters of the company's sales. The analyst noted that this exposes Amgen to heavy patent losses in the medium term, but he thinks the company's pipeline of new medications is "fuller than it has ever been."
To read more about the call, click here.
— Hakyung Kim
Beige Book indicates 'modest' economic growth in July, August
The U.S. economy saw "modest" growth in July and August, while price growth slowed and hiring was "subdued," the Federal Reserve's latest "Beige Book" report showed Wednesday.
In the latest installment of the central bank's progress report on the national economy, businesses reported that consumers spent more on tourism and travel while other areas saw slowness in the summer months.
On employment, businesses said they still struggled to fill open positions, but expect that the trend of sharply higher wages will abate as the year progresses.
Regarding inflation, manufacturing and consumer goods showed a slowing, through "several" regions saw "sharp increases" in property insurance.
Stocks making the biggest midday moves
Here are some of the names making moves during midday trading:
- Roku — The stock added 2.3% after Roku said it plans to lay off 10% of its staff, consolidate office space and trim other expenses. The streaming company also increased its third-quarter revenue guidance.
- NextGen Healthcare — Shares soared 14.6% after private equity firm Thoma Bravo said it would acquire the health-care software provider for $23.95 per share, 17% higher than where the stock closed Tuesday.
- AMC Entertainment — The stock tumbled 30.5% after AMC announced plans to sell up to 40 million new shares to raise cash. The news wasn't unexpected after AMC converted preferred APE shares into AMC common stock last month.
— Michelle Fox
Deutsche Bank sticks with Tesla for the long haul
A turbulent macroeconomic environment might spell near-term challenges for Tesla