Wall Street equities dropped on Wednesday as signs that a gas supply crunch could ease knocked energy stocks and uncertainty over US monetary policy discouraged traders from buying into other sectors.
The blue-chip S&P 500 index fell 0.9 per cent, with its energy subsector slipping the most, after Russia signalled it could help temper a global scramble for natural gas that had put upwards pressure on oil prices. The technology-focused Nasdaq Composite fell 0.7 per cent.
UK gas contracts for November delivery surged almost 40 per cent to more than £4 per therm earlier on Wednesday, before falling back to £2.71 after Russian president Vladimir Putin said his nation was prepared to supply more of the commodity to Europe.
Brent crude, the international oil benchmark that has rallied over the past month as gas shortages in Europe and Asia increased demand for other sources of power, declined 1.8 per cent to $81.05 a barrel after touching $83.47 earlier in the week.
All sectors of the S&P 500 fell, as views persisted that broad inflationary pressure in the US and a recovering labour market could lead the Federal Reserve to reduce its crisis-era debt purchases that have lowered bond yields and supported stocks since March last year.
“Buying the dip is a questionable strategy,” said Toby Clothier, head of the global, thematic and strategy team at Mirabaud Securities.
The yield on the 10-year US Treasury bond, which moves inversely to the price of the debt and is used as a reference point for stock market valuations, fell below 0.6 per cent in August 2020 but is expected by many investors to exceed 2 per cent by the end of this year.
On Wednesday, this debt yield ticked 0.02 percentage points lower to 1.51 per cent but remained close to its highest point since June. “As yields collapsed the [valuation] multiples that people are prepared to pay for stocks [went] up and up and up,” Clothier said.
“We are seeing that process go into reverse quite quickly,” he added, because of “a toxic combination” of “surging inflation of all kinds, the Fed realising it’s time to stop buying bonds and China is slowing down”.
Headline inflation in the US has topped 5 per cent for three consecutive months, with price pressures in August broadening out from those caused by supply chain bottlenecks related to the pandemic into the housing sector.
“Market sentiment is just terrible at the moment,” said Patrick Spencer, vice-chair of equities at RW Baird. “It’s a wall of worry, driven by inflation.”
Jobs data due on Friday are expected to show US employers hired almost half a million new workers in September, bringing the Federal Reserve closer to its goal of maximum employment that analysts think will set the stage for the Fed in November to announce the tapering of its $120bn-a-month bond purchasing programme.
US private payrolls rose by 568,000 last month, according to a report from payroll processor ADP published on Wednesday. That was the biggest rise since June and topped economists’ expectations for an increase of 428,000.
Europe’s regional Stoxx 600 share index closed down 1 per cent, driven lower by a 2 per cent drop in its energy sub-sector. London’s FTSE 100 index slipped 1 per cent as the share prices of weighty constituents BP and Royal Dutch Shell, the oil producers, lost about 2.5 per cent each.
The dollar index, which measures the greenback against six other currencies, added 0.4 per cent, trading close to its highest levels in a year as investors shied away from stock markets and anticipated tighter US monetary policy.