S&P 500, Nasdaq close lower after new manufacturing data

The S&P 500 and Nasdaq on Wall Street closed lower on Wednesday after the newly published manufacturing data showed persistent price pressures.

The S&P 500 index ended the session at 3,951.39, losing 18.76 points or 0.47 percent. Nasdaq finished at 11,379.48, declining by 76.06 points or 0.66 percent. Both major indexes also closed lower in the previous session.

Seven of 11 major S&P sectors ended in the red. However, the energy and material sectors rose by almost two percent due to a rally in commodity prices after new data revealed that China's manufacturing activity surged at the fastest pace in over ten years. Analysts explained that the jump in China's manufacturing activity would likely boost demand for commodities.

The Dow Jones was the only benchmark Wall Street index that closed in the green on Wednesday, albeit only slightly. The index gained 5.14 points and closed at 32,661.84.

Caterpillar Inc was a major contributor to the Dow's gain after the construction equipment producer announced that it had managed to avoid a strike by forming a "tentative" agreement with a labor union. Caterpillar shares were up 3.81 percent to 248.67.

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Meanwhile, Tesla shares fell by 1.43 percent to 202.77 ahead of its investor day event. Later, its stock plummeted by over five percent in the after-hours after the company failed to deliver details of its expansion plan, which CEO Elon Musk called "Master Plan 3," during the event.

Biotech company Novavax, known for its COVID-19 vaccine, saw a steep decline of 26.4 percent in its stock price after it voiced concerns about the ability to remain in business and announced plans to reduce spending ahead of the upcoming vaccination campaign in the fall.

The Institute for Supply Management (ISM) reported that the U.S. manufacturing sector had shrunk for the fourth consecutive month in February, with the purchasing managers' index being at 47.7, lower than the initial forecast of 48.

Meanwhile, the ISM survey found that prices for raw materials increased last month. The ISM said the price increase was partly caused by "a return to more balanced supplier-buyer relationships," in which buyers recognize the need to reorder materials while sellers aim to fill order books.

Following the manufacturing data, the two-year yield — typically moving along with short-term interest rate expectations — jumped to 4.9 percent, its highest point since 2007. Meanwhile, the 10-year yield rose to over four percent for the first time since November 2022.

"The 10-year Treasury is up and that is just a natural headwind to equity valuations."

Matt Stucky, Senior Portfolio Manager at Northwestern Mutual Wealth Management

Matt Stucky, a senior portfolio manager at Northwestern Mutual Wealth Management, said the gain in 10-year Treasury yield was a "natural headwind" to equity values.

"You also got a tick up in the ISM prices paid, which means that prices generally are rising now for manufacturing," Stucky added. "It just means that the Federal Reserve is likely to push further into restrictive territory with their policy and stay there longer."

Further rate hikes by central bank

Fed futures forecast that the Fed will increase the interest rate to the range of 5.5 to 5.75 percent by September, indicating that there would be up to three more hikes in the coming months.

Several Fed officials also cautioned the public to brace for tighter monetary policy. Minneapolis Fed President Neel Kashkari said he is "open-minded" on either a 25-basis-point or a 50-basis-point rate increase in the upcoming Federal Open Market Committee (FOMC) meeting.

Meanwhile, Atlanta Fed President Raphael Bostic warned that the central bank's rate policy would have to remain high "until well into 2024" to get closer to its two percent inflation target.

Two major reports will be published in the coming days — the U.S. monthly job report and the consumer price index. The data will guide the market to determine the path of the Fed's monetary policy before the rate-setting meeting on March 21 to 22, said analysts.