S&P 500 slips into the red, Nasdaq, Dow give up gains on hawkish Fed comments

U.S. stocks had pared most of their gains, with the S&P 500 slipping into negative territory, and Treasury yields were again inching up as positive momentum from strong quarterly reports and weak housing data stalled after further hawkish commentary from a Fed official.

The benchmark S&P 500 (SP500) was 0.09% lower at 3,691.73 points. The tech-heavy Nasdaq Composite (COMP.IND) had gained 0.24% to 10,706.44 points, as a rise in shares of Alphabet and Amazon counteracted a slide in Tesla. The blue-chip Dow (DJI) added 0.23% to 30,492.57 points, helped by IBM.

Treasury yields were climbing again. The 10-year Treasury yield (US10Y) was up 5 basis points at 4.18% while the 2-year yield (US2Y) was up 3 basis points at 4.58%.

All three major indices had opened lower, while the pound rallied against the dollar after Truss said she would quit, in what would be the shortest regime as prime minister in UK’s history. The resignation came after the introduction of a mini-budget that spurred a liquidity crisis in the bond market.

Strong quarterly reports from IBM and AT&T offset a slide in Tesla, with gains in megacap tech names also helping the markets shake off the news of the resignation and march higher in late morning trade.

However, comments from Philly Fed President Patrick Harker have led to stocks giving up their gains. Harker said the central bank would keep raising rates for a while and sees rates well above 4% by the end of the year. Governor Michelle Bowman will also be speaking later in the day.

“The conundrum for the equity market is that this year’s economic weakness did not translate into a lower CPI. While growth has stagnated, inflation and corporate pricing power have remained elevated. Consequently, the Fed has had to ramp up its hawkishness both through jawboning and action,” Jefferies equity strategist Sean Darby said.

In economic news, September existing home sales slumped for an eight consecutive month and fell to a 10-year low. The data helped support the notion that the Fed’s aggressive rate-hike cycle was having its intended effect on slowing the economy.

“The US economy is not especially interest rate sensitive, but of course housing is the one sector where rising rates have a direct and swift impact on activity,” UBS’ Paul Donovan said.

“The eighth straight drop in existing home sales takes the cumulative fall from the January peak to 27%, but this is not the floor. The surge in mortgage rates to nearly 7% over the past few weeks has triggered a further drop in mortgage demand, and we expect home sales to keep falling until early next year,” Pantheon said.

Among other data, October Philly Fed manufacturing index numbers arrived lower than forecasted at -8.7 compared to -5.

Weekly jobless claims fell by 12K to 214K compared to the consensus figure of 235K, indicating that the labor market remained tight and resilient even as interest rates rise.