Stock Market Update

[BRIEFING.COM] Selling pressure has intensified across the market at midday, with a sharp rise in Treasury yields combining with higher oil prices and a reversal in the technology stocks that powered the week's early advance. The S&P 500 (-0.9%) and Nasdaq Composite (-1.3%) sit at their session lows, while the DJIA (-0.7%) has given up its earlier relative strength. The Russell 2000 (-1.3%) is the weakest of the major averages, contrasting with a flat showing from the S&P Mid Cap 400.

The move in rates has become a central influence on today's action. Stronger preliminary September PMI readings from S&P Global fueled expectations that additional monetary policy tightening will be needed, sending the 10-year note yield up 13 basis points to 5.10%. The Services PMI climbed to 58.7 from 56.5 in August, while the Manufacturing PMI increased to 57.0 from 53.9. Fed Governor Michael Barr (voting FOMC member) added to the more hawkish policy backdrop, saying that further policy adjustments are likely to be needed in his base case to ensure inflation returns to target in a timely fashion.

Expectations for another near-term rate hike have consequently increased, with the probability of a 25-basis-point increase to 4.00-4.25% at the October FOMC meeting rising to 70.9%, according to the CME FedWatch Tool.

The combination of higher rates and some profit-taking has hit several of the areas responsible for the market's strong start to the week. The PHLX Semiconductor Index is down 2.1% after two exceptional sessions, dragging the information technology sector (-1.1%) lower. Mega-cap growth stocks are also retreating, leaving the Vanguard Mega Cap Growth ETF down 1.1%, while the communication services sector (-1.3%) is another notable laggard.

Pressure is even more pronounced in the consumer discretionary sector (-1.7%), where higher interest rates and elevated energy costs are adding to concerns surrounding discretionary spending. Travel-related stocks are among the weakest names in the group, with Expedia Group (EXPE 260.56, -20.14, -7.17%) and Airbnb (ABNB 151.89, -9.92, -6.13%) suffering sizable losses amid concerns that Meta Platforms' (META 752.61, +16.01, +2.17%) Muse AI agent could disrupt established online travel platforms. Cruise stocks are also under pressure, with Royal Caribbean (RCL 227.16, -7.73, -3.29%) standing out after agreeing to invest approximately $3 billion for a 50% interest in a new joint venture controlling Sandals and Beaches Resorts.

Elsewhere in the consumer space, McDonald's (MCD 234.61, -15.74, -6.29%) has fallen to a new 52-week low following the unveiling of its McDonald's > NEXT strategy. The long-dated nature of the plan and its sizable spending commitments have received a poor response as investors weigh those investments against slowing U.S. comparable sales and weaker traffic.

Energy stocks are moving in the opposite direction of most of the market. The energy sector (+0.8%) sits atop the standings as WTI crude rises $1.26 (+1.4%) to $91.78 per barrel. The industrials sector (+0.2%) is the only other sector in positive territory.

Today's retreat has therefore been notably different from the technology-led strength that opened the week. Semiconductor and mega-cap growth stocks have reversed course as Treasury yields climb, while higher oil prices are creating another source of pressure across rate- and consumer-sensitive areas. Weakness in the Russell 2000 alongside the large-cap averages also points to broad selling pressure, although the S&P Mid Cap 400 continues to buck the trend.

Reviewing today's data:

• 09/19 MBA Mortgage Applications Index -1.5%; prior -4.1%
• September S&P Global U.S. Manufacturing PMI - Prelim 57.0; prior 53.9
• September S&P Global U.S. Services PMI - Prelim 58.7; prior 56.5