NEW YORK (AP) — Stocks are falling again Thursday as Wall Street’s red-hot rally this year cools a bit more.
The S&P 500 was 0.5% lower in early trading and on pace for a third straight loss after hitting a 16-month high. The Dow Jones Industrial Average was down 143 points, or 0.4%, at 35,139, as of 9:40 a.m. Eastern time, and the Nasdaq composite was 0.3% lower.
A day earlier, U.S. stocks tumbled to their worst loss in months. While the drop came after Fitch Ratings downgraded the U.S. government’s credit rating, several analysts say they expect the move to have minimal impact on financial markets. U.S. Treasury debt is the cornerstone of the global financial system, but the rating change by itself likely won’t push any investors to dump theirs.
The big questions remain whether the economy will avoid a recession, how corporate profits will do and where interest rates are heading. Hanging over them all is whether the stock market’s big run this year was overdone, as critics suggest.
Treasury yields in the bond market continued to march higher Thursday, putting more pressure on the stock market. The yield on the 10-year Treasury rose to 4.18% from 4.09% late Wednesday and from 2.75% a year ago. Higher yields mean bonds are paying more in interest, which can peel buyers away from stocks.
Yields have climbed as the economy has remained remarkably resilient despite much higher interest rates meant to drive down inflation. The U.S. government has also continued to borrow heavily.
In the latest reading on the economy, a report showed that the number of workers applying for unemployment benefits rose last week but remains relatively low.
A solid job market has helped to keep the economy out of a long-predicted recession. But it also threatens to add upward pressure on inflation. That could push the Federal Reserve to keep raising interest rates, dashing Wall Street’s hopes that the last rate hike of the cycle has already been put in place.
“The Fed has singled out the jobs market as a potential inflationary threat, and until it shows some signs of deterioration, we’re still looking at a ‘higher for longer’ outlook for interest rates,” said Mike Loewengart, head of model portfolio construction at Morgan Stanley Global Investment Office.
The federal funds rate has leaped to its highest level in more than two decades, up from a record low of virtually zero early last year. High rates grind down inflation by bluntly slowing the entire economy and dragging on prices for investments.
Critics say a consensus has formed too quickly on Wall Street that inflation will continue to moderate and that the Fed can not only halt its hikes to rates but even begin cutting them early next year.
Across the Atlantic, the Bank of England on Thursday raised its main interest rate again to a 15-year high and indicated it could stay high for a while. That followed a move last week by the Bank of Japan that could allow longer-term interest rates there to rise.
Earnings reporting season also continues for big U.S. companies. The majority have reported better results for the spring than expected, but that’s usually the case and expectations were quite low coming into this quarter’s reporting season.
Qualcomm tumbled 9.5% for one of the largest losses in the S&P 500. It reported weaker revenue for the spring than expected, even though its profit toppped forecasts.
On the winning side was Clorox, which jumped 8.9%. It reported stronger profit and revenue than analysts expected.
Two hugely influential companies will report their results after trading ends for the day. Apple and Amazon are two of the largest companies on Wall Street by market value, which gives their stock movements more heft on the S&P 500 and other indexes. They’ve also soared through this year on expectations of continued growth, and they’ll need to deliver to justify their big stock gains.
