Wall Street declines as manufacturing data lifts yields

U.S. stocks edged lower on Monday, dragged down by investor worries over the timing of interest rate cuts by the Federal Reserve after stronger-than-expected manufacturing data pushed Treasury yields higher.

The Institute for Supply Management (ISM) said its manufacturing PMI increased to 50.3 last month, the highest and first reading above 50 since September 2022, from 47.8 in February. It suggested the manufacturing sector, which has been battered by higher interest rates, was recovering.

"If the economy is still somewhat strong and now that PMI data is starting to move up, that just suggests there could be some upside pressure in yields," said Keith Lerner, chief market strategist at Truist Wealth in Atlanta.

Benchmark 10-year and two-year Treasury yields jumped to two-week peaks following the manufacturing data.

The Dow Jones Industrial Average DJI fell 267.11 points, or 0.67%, to 39,540.26, the S&P 500 SPX lost 15.11 points, or 0.29%, to 5,239.24 and the Nasdaq Composite IXIC dropped 7.41 points, or 0.05%, to 16,372.04.

The U.S. rate futures market was pricing in a 57% chance of a rate cut in June, down from about 64% a week ago, according to the CME's FedWatch tool.

"We would prefer a stronger economy with less rate cuts than a weaker economy with more rate cuts, but, on a short term basis, the narrative has moved to about three rate cuts," Lerner added.

The majority of S&P 500 sectors were lower, with the real estate S5REAS, healthcare S5HLTH, and utilities S5UTIL among the worst hit. The energy sector SPN gained along with stronger crude oil prices.

The technology sector S5INFT also was higher, and an index of semiconductors SOX was up 1.1%.

Declining issues outnumbered advancing ones on the NYSE by a 1.90-to-1 ratio; on Nasdaq, a 1.78-to-1 ratio favored decliners.

The S&P 500 posted 34 new 52-week highs and 1 new lows; the Nasdaq Composite recorded 88 new highs and 64 new lows.