The S&P 500 and Nasdaq Composite on Wall Street finished lower on Wednesday as the market anticipated the publication of May's consumer price index next week.
The S&P 500, which follows the stock performance of the top 500 American companies, declined by 16.33 points or 0.38 percent to 4,267.52, while the Nasdaq Composite concluded the trading session at 13,104.90, losing 171.52 points or 1.29 percent.
The Dow Jones Industrial Average was the only major index closing higher on the day, adding 91.74 points or 0.27 percent to 33,665.02.
The energy sector within the S&P 500 gained 2.65 percent after oil prices traded higher. Oil prices previously posted consecutive losses on signs of decreasing demand from China and potential oversupply.
The KBW Regional Banking Index closed 3.40 percent higher to 93.64, the highest since March 29, while The CBOE Volatility Index — Wall Street's fear meter — closed at its lowest level in over three years, at 13.94.
Analysts explained that investors had started to steer away from megacap and growth stocks amid uncertainty in the macroeconomic environment, leading to a 1.78 percent increase in the small-cap index Russell 2000.
"Over the past week, we've seen a pretty dramatic outperformance of small caps relative to large caps."
Paul Baiocchi, SS&C ALPS Advisors chief ETF strategist
According to market analysts, a rally in megacap stocks and stronger-than-anticipated company earnings have boosted the U.S. equity market over the past week, with the S&P 500 increasing by nearly 20 percent from its October 2022 lows.
Netflix saw a 0.12 percent increase after Wells Fargo raised the streaming company's stock price target from $400 to $500. JPMorgan also upgraded Netflix's stock rating to overweight.
Shares of Yext Inc. jumped by 38.44 percent to $13.29 after the American online marketing company increased its annual earning projection.
On the other hand, Campbell Soup dropped by 8.91 percent after the packaged meal producer posted a lower-than-expected gross margin for the fiscal third quarter. Campbell Soup reported that commodity and freight costs had narrowed its profit margin.
Analysts said investors were anticipating the consumer price data to gain insights on the Federal Reserve's next policy action. Economists expect the growth in consumer prices to ease slightly last month from April but with elevated core prices — which excludes volatile energy and food costs.
Consumer prices showed a 4.9 percent year-over-year growth in April, lower than the market's earlier estimate of five percent. Meanwhile, in the same month, core consumer prices grew by 5.5 percent on an annual basis.
Treasury yields weigh on stocks
Analysts said an increase in U.S. Treasury yields after the Bank of Canada (BoC) raised its benchmark rate had also weighed on Wall Street's stocks on Wednesday.
The two-year Treasury yield, which is sensitive to interest rate expectations, increased by 4.8 basis points to 4.573 percent, while the 10-year notes yielded 3.793 percent after gaining 9.3 basis points. The spread of the yield curve between the two- and 10-year notes was inverted, indicating the market's expectations of a recession in the near future.
The 30-year Treasury yield also rose by 6.7 basis points to 3.942 percent. Mizuho Securities USA economist Steven Ricchiuto said the increase in Treasury yields indicated that the market had concluded that the Fed would maintain higher interest rates for longer. The BoC's decision to hike its key rate to 4.75 percent is expected to influence the Fed's policy decision as well.
Investors now predict a 69 percent chance that the U.S. central bank will keep the rates steady next week and perform another rate hike in July.