Closing Bell: Markets Tumble on Fed Interest Rate Hike Anxiety

U.S. stocks fell sharply and Treasury yields shot higher Wednesday after fresh data and statements raised fear that more Federal Reserve interest rate hikes may be warranted.

The S&P 500 (SPX) was down 0.75%, and the Dow Industrial Average ($DJI) fell 0.68%. The Nasdaq-100 (NDX) fell 0.85% and the small-cap Russell 2000 (RUT) dropped 1.77%.

The benchmark 10-year U.S. Treasury yield surged to 5.11%, its highest level since July 2007, after the latest purchasing managers’ index (PMI) readings came in hotter than expected. The 2-year Treasury note yield hit its highest level since May 2024 at 4.947%. Fed Governor Michael Barr said Wednesday that further “policy adjustments” will likely be needed to ensure inflation comes down to the Fed’s 2% target “in a timely fashion” after the Fed’s 25 basis point rate increase last week.

Oil prices rose over 2% on Wednesday and settled above $92 a barrel, snapping a five-session losing streak. Iran’s president told the UN General Assembly Wednesday that Tehran would never surrender to US pressure, though an Iranian official told Reuters that diplomacy must continue. President Donald Trump said Tuesday that U.S. and Iranian officials met for three hours during the annual United Nations General Assembly gathering in New York and he described it as a “very good meeting.”

A Few Things to Watch from Wednesday’s Market Activity:

• The S&P Global U.S. Services PMI rose to 58.7 in September from 56.5 in the previous month, well above the market consensus of 56, to reflect the strongest expansion in services activity in over five years. The S&P Global U.S. Manufacturing PMI jumped to 57.0 in September from 53.9 in August, well above market expectations of 53.6, according to the flash estimate. The S&P Global U.S. Flash Composite PMI jumped to 58.4 in September from 56 in August, pointing to the strongest expansion in private sector activity since July 2021, and an acceleration of growth for a fourth successive month. See Kevin Mahn Doesn't See Point in Fed's Rate Hike: 'Is 2% Really the Goal' for Inflation?
• McDonald’s (MCD) shares slumped 4.81% after it said it plans to spend around $8.5 billion through 2036 to help franchisees and issued a weak outlook for sales and traffic. See Ca$htag$: Casual Dining in Sweet Spot as DRI Serves Earnings
• Among S&P 500 sectors, utilities, communication services and consumer discretionary all fell more than 1.5%. See Higher Rates Ding Utilities as Power Investments Gain Traction | Higher Rates Ding Utilities as Power Investments Gain Traction
• Meta Platforms (META) shares rose 1% to $744.10 after Cantor Fitzgerald raised its price target to $860 from $680 and maintained its Overweight rating. Microsoft (MSFT) shares rose 0.52% after Stifel upgraded the stock from Hold to Buy and said it will get a boost from Azure and Copilot. See META Muse's Game Changing Effects for Stock, Greater AI Trade and Example Trades: MSFT, DRI, MRVL | Fast Market
• Shares of Maplebear (CART), which does business as Instacart, fell 3.2% after Instacart said it entered a partnership with instant commerce company Gopuff and widened its grocery delivery service on Airbnb (ABNB), according to the report. See Ca$htag$: Ways DASH Speeds Past UBER & CART in Food Delivery

For economic and earnings calendars for the week, see Week Ahead: Heavy Economic Data as U.S.-China Summit Looms

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