U.S. stock markets closed lower on Wednesday as market participants remain highly concerned regarding the Fed’s next move with respect to interest rate. A resilient U.S. economy and an elevated inflation rate may compel the central bank to pursue high interest rate regime. Higher yield on U.S. sovereign bonds higher U.S. dollar index also dented investors’ confidence on risky assets. like equities. All the three major stock indexes ended in negative territory.

How Did The Benchmarks Perform?

The Dow Jones Industrial Average (DJI) fell 0.6% or 198.78 points to close at 34,443.19 after a choppy session. Notably, 22 components of the 30-stock index ended in negative territory, while 8 in green. The tech-heavy Nasdaq Composite finished at 13,872.47, sliding 1.1% due to weak performance of large-cap technology stocks.

The S&P 500 dropped 0.7% to end at 4,465.48. Nine out of 11 broad sectors of the benchmark ended in negative territory, while two finished in green. The Technology Select Sector SPDR (XLK), the Consumer Discretionary Select Sector SPDR (XLY), the Industrials Select Sector SPDR (XLF), the Health Care Select Sector SPDR (XLV) and the Materials Select Sector SPDR (XLB) fell 1.1%, 0.9%, 0.4%, 0.5% and 0.2%, respectively.

The fear-gauge CBOE Volatility Index (VIX) was up 3.1% to 14.45. A total of 9.39 billion shares were traded on Wednesday, lower than the last 20-session average of 10.17 billion. Decliners outnumbered decliners on the NYSE by a 2.05-to-1 ratio. On Nasdaq, a 1.97-to-1 ratio favored declining issues.

Near-Term Concerns

Crude oil prices spiked on Sep 5, following the decision of Saudi Arabia to extend its daily production cut decision until the end of 2023. Investors are concerned that higher crude oil prices will result in higher inflation. Higher oil prices will directly affect transportation sector, which in turn will raise the general price level. This will make the task of the Fed more difficult for a soft landing of the U.S. economy.

Moreover, the yield on the benchmark 10-Year U.S. Treasury Note rose 2 basis points to 4.292%. The yield on the short-term 2-Year U.S. Treasury Note jumped 10 basis points to 5.02%. This yield is loosely linked to interest rate movement. The yield on the long-term 30-Year U.S. Treasury Note climbed 14 basis points to 4.373%. The ICE U.S. dollar Index rose to a six-month high at 104.90.

Higher risk-free market interest rate is detrimental to growth stocks like technology. These companies depend on easy access to cheap credits. Consequently, shares of tech behemoths like NVIDIA Cor. (NVDA Quick QuoteNVDA - Free Report) , Apple Inc. (AAPL Quick QuoteAAPL - Free Report) and Alphabet Inc. (GOOGL Quick QuoteGOOGL - Free Report) declined 3.1%, 3.6% and 1%, respectively. NVIDIA currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Strong Economic Data

The Institute of Supply Management reported that services purchasing managers’ index (PMI) for August came in at 54.5%, beating the consensus estimate of 52.7%. The reading for July was 52.7%. Notably, any reading above 50% indicates expansion of services activities. August marked the eighth consecutive months of expansion.

The prices index for the services PMI was up 2.1% to 58.9%. Notably, the prices index for the manufacturing PMI for August was also up 5.8% to 48.4%. This indicates inflation rate to be elevated while consumer demand remains strong.

The U.S. trade deficit for July came in at $65 billion, lower than the consensus estimates of $68.3 billion. The data for June was revised downward to a deficit of $63.7 billion form a deficit of $65.5 billion reported earlier. July exports were $251.7 billion, $3.9 billion more than June exports. July imports were $316.7 billion, $5.2 billion more than June imports.