US STOCKS-Wall St slips as Treasury yields rise, oil prices boost energy sector

While all three main U.S. stock indexes had logged gains in the previous week on hopes for a less hawkish Fed, that sentiment had been faded somewhat by Monday. U.S. Treasury yields rose after economic data showed resilience and Fed Governor Christopher Waller said it suggests that the central bank need not change rates any time soon.

The S&P 500 closed lower on Tuesday, pressured by rising Treasury yields and oil prices as investors assessed prospects for the Federal Reserve's interest rate path. While all three main U.S. stock indexes had logged gains in the previous week on hopes for a less hawkish Fed, that sentiment had been faded somewhat by Monday.

U.S. Treasury yields rose after economic data showed resilience and Fed Governor Christopher Waller said it suggests that the central bank need not change rates any time soon. "Part of the reason stocks are struggling to make headway is that interest rates are continuing to rise and provide a good alternative to stocks," said Paul Nolte, market strategist, Murphy & Sylvest Wealth Management, Elmhurst, Illinois.

With U.S. crude oil prices rising on Tuesday, Nolte also cited recent strength in oil prices as a damper to the Fed's efforts to push inflation back to 2%. "Everybody has been expecting the Fed to step aside or start cutting rates. That might not be the case," he said.

Traders' bets that the Fed will leave rates unchanged at its September policy meeting stood at 93%, while they priced in a roughly 54% chance of a pause in November, the CME Group's FedWatch tool showed. Along with light trading volume a day after Monday's Labor Day holiday, Sam Stovall, chief investment strategist at CFRA Research, also noted that the Fed will have to look at upcoming data such as August's inflation readings before making a rate decision later this month.

"The market's not sure which way it wants to turn," he said. According to preliminary data, the Dow Jones Industrial Average fell 195.61 points, or 0.56%, to 34,642.1, the S&P 500 lost 18.97 points, or 0.42%, to 4,496.8 and the Nasdaq Composite dropped 10.86 points, or 0.08%, to 14,020.95.

The energy sector was a bright spot hitting a roughly seven-month high during the session after Saudi Arabia and Russia announced a fresh extension to their voluntary supply cuts. But utilities and economically sensitive materials sector and industrials sectors were weak throughout the session.

China's services activity expanded at its slowest pace in eight months in August, a private sector survey showed, hurting sentiment as traders returned from the Labor Day holiday.

Data on Tuesday showed orders for U.S. factory goods declined 2.1% in July, ending a four-month streak of gains. Goldman Sachs lowered the chances of a U.S recession in the next 12 months to 15% from 20%.

Shares of Airbnb rallied along with Blackstone on news that their stocks would join the S&P 500 index. Oracle rose after Barclays upgraded the software firm to "overweight" from "equal weight."