Wall Street Yo-Yos to a Mixed Close

Wall Street yo-yoed to a mixed finish Wednesday as rising oil prices and bond yields cranked up the pressure even higher on the stock market.

The S&P 500 inched up by less than 0.1% after taking several U-turns through the day. The Dow Jones Industrial Average fell 68 points, and the Nasdaq composite rose 0.2%.

September is on track to be Wall Street’s worst month of the year as it tries to absorb a recent leap by Treasury yields. Yields rose further Wednesday, reaching heights unseen in more than a decade. Crude oil prices also rallied further above $93 per barrel.

The yield on the 10-year Treasury rose further Wednesday, to 4.63% from 4.55%. That's up from about 3.50% in May and from just 0.50% early in the pandemic. It's soared as Wall Street increasingly accepts a new normal where interest rates will stay high for longer.

After more than a decade where the Federal Reserve would often cut rates in order to help the economy, still-high inflation is now discouraging the Fed from lowering rates quickly. It’s already raised its main interest rate to the highest level since 2001, and it indicated last week it will cut rates by less in 2024 than earlier expected.

Strategists at Bank of America say yields could keep rising. Even if the Fed is close to done with hiking its overnight interest rate, it could hold the rate there for a long time.

It's all brought an end to the old era of investing, where the mantra was “There Is No Alternative” to stocks because bonds were paying such scant yields. With bonds now paying much more and providing real alternatives, stock prices could feel downward pressure for a while.

Even so, the “Fed won’t be overly reactive” to drops in stock prices because the overall economy remains solid, the strategists led by Mark Cabana wrote in a BofA Global Research report.

A report on Wednesday said orders for long-lasting manufactured goods were stronger last month than economists expected. It’s the latest signal that the overall economy remains solid despite much higher interest rates.

The upside of such strength means the economy has avoided a long-predicted recession. But it could also keep enough upward pressure on inflation to encourage the Fed to keep rates high.

Recent jumps in oil prices have likewise turned up the heat on inflation, and crude climbed further Wednesday.

Benchmark U.S. crude rallied $3.29 to settle at $93.68 per barrel, up from less than $70 in June. It's threatening to top $100 again for the first time since the summer of 2022. Brent crude, the international standard, rose above $94 per barrel.

Crude's spurt helped stocks in the oil and gas industries to some of the market's most significant gains. Marathon Oil rose 5.2%, and Devon Energy climbed 4.7%

Costco Wholesale was another winner, rising 2.2% after it reported stronger profit for the latest quarter than analysts expected.

On the losing end of Wall Street was NextEra Energy Partners, which fell 15.9%. The partnership cut its growth forecast for how much it will distribute to unit holders, citing the burden of higher interest rates.

Besides high interest rates, a long list of other worries is also tugging at financial markets. The most immediate is the threat of another U.S. government shutdown as Capitol Hill threatens a stalemate that could shut off federal services across the country as soon as this weekend.

A shutdown would furlough millions of federal employees, leave the military without pay, disrupt air travel and cut off vital safety net services. Stock prices have managed through past shutdowns relatively well, but conditions may be a little different this time.

Economists at Goldman Sachs expect all data reports from the federal government to be postponed during a shutdown. That could complicate things for the Federal Reserve, which has said repeatedly it will make its upcoming decisions on interest rates based on what reports say about inflation and the job market. And several highly influential reports are supposed to come in the coming weeks.

The next monthly jobs report is due on Oct. 6, and two big inflation reports are due the following week.

Other threats looming over Wall Street include shaky economies around the world, a strike by U.S. auto workers that could put more upward pressure on inflation and a resumption of U.S. student-loan repayments that could dent spending by households.

Stock markets in Asia gained ground, and markets in Europe slipped.

Indexes rose 0.8% in Hong Kong and 0.2% in Shanghai even though concerns remain high about a faltering economic recovery and troubles for Chinese property developers, including the heavily indebted Evergrande.