S&P 500 falls as tariff uncertainty, spiking US bond yields weighs

Investing.com - The S&P 500 dropped on Tuesday, as the tech wreck continued pressured amid tariff uncertainty and a jump in bond yields.

At 1:12 p.m. ET (17:12 GMT), the blue-chip Dow Jones Industrial Average fell 432 points, or 1%, the benchmark S&P 500 fell 1.3%, and the tech-heavy Nasdaq Composite slumped 1.6%.

The main averages on Wall Street were closed on Monday in observance of the Labor Day holiday. At the end of the last trading day on Friday, stocks dipped, weighed down partially by declines in artificial intelligence-related names. Sticky personal consumption expenditure price index data also sparked some doubts over just how much impetus the Federal Reserve has to cut rates.

Fresh tariff uncertainty weighs  

Traders were digesting a ruling from the U.S. Court of Appeals for the Federal Circuit late last week that most of U.S. President Donald Trump’s levies are illegal, and that only Congress holds the authority to pass the duties. Trump chided the decision, saying he will appeal to the Supreme Court. 

Media reports have suggested that Trump officials have long anticipated that the high court would eventually need to settle the matter. The administration is reportedly confident that the tariffs -- and Trump’s push to assert his authority to enact them -- will eventually be supported by the court’s conservative majority.

In a note to clients, analysts at Vital Knowledge said the the appeals court decision is "at best neutral" for markets, adding it "won’t come close come close to eliminating Trump’s import taxes, and it just creates more uncertainty for Corporate America as the White House searches for a sturdier legal scaffolding for its draconian trade policy[.]"

Although a Supreme Court ruling against the tariffs may lower the prospect of tariff-related economic disruptions, such a move has the potential to herald elevated murkiness around recent trade agreements between the U.S. and its partners, which could need to be renegotiated. 

Trump’s tariffs took effect from August, with countries facing levies between 10% to as high as 50%. But a bulk of the tariffs are expected to be borne by local importers, which could underpin U.S. inflation in the coming months.

Treasury yields jump to put further squeeze on tech 

Treasury yields jumped sharply in tandem with a jump in other global bond yields amid concerns about rising global debt levels. 

Concerns about the U.S. having to repay revenue collected from tariffs, which would deepen the country’s massive debt added to global fiscal worries, putting further pressure on U.S .Treasuries. 

Rising U.S. bond yields weighed on interest-sensitive sectors such as tech, with Nvidia leading to the downside.  

Elsewhere, PepsiCo Inc (NASDAQ:PEP) rose more 1% after the Wall Street Journal reported that activist investor Elliot Management build up a $4 billion stake in and is pushing for changes that can boost the beverage and snacks giant’s share price.  

Gold stocks including Newmont Goldcorp Corp (NYSE:NEM), and Royal Gold Inc (NASDAQ:RGLD) rose sharply after XAU/USD hit a record high amid growing safe-haven demand.

Uncertainty clouds U.S. interest rate outlook 

Uncertainty over U.S. interest rates also remained a point of contention for Wall Street. Last week’s PCE data, which is the Fed’s preferred inflation gauge, showed inflation increased mildly in July as expected, pointing to further stalling in a deflationary trend seen earlier in the year.

Lingering inflation could give the Fed less impetus to cut interest rates. While Fed Chair Jerome Powell had in August signaled that the bank was considering a September rate cut amid possible cooling in the labor market, he flagged risks from persistent price pressures. 

Still, markets were factoring in a roughly 91% chance the Fed will slash rates by a quarter of a percentage point at its upcoming gathering later this month, according to CME’s FedWatch Tool. A slew of Fed officials are also set to speak this week.

Concerns over the Fed’s independence, spurred on by Trump’s efforts to fire staff at the central bank, have weighed on risk appetite as well. Fed Governor Lisa Cook indicated last week that she will seek legal action over Trump’s efforts to fire her. 

August jobs data looms large

Investors are now turning their gazes back to the economic calendar, which will be headlined this week by Friday’s release of the ever-important monthly nonfarm payrolls report.

Analysts have said that a soft or tepid reading for August -- which would come after an unexpectedly weak return in July and deep downward revisions to the preceding two months -- could further cement bets that the Fed will ratchet down interest rates at its next policy meeting on Sept. 16-17.

Economists expect the U.S. to have added 74,000 roles, versus in 73,000 in July.

In the meantime, markets will be keeping tabs on other indicators, including a gauge of U.S. manufacturing sector activity on Tuesday from the Institute for Supply Management. The August measure is tipped to come in at 49.0, compared to 48.0 in July but below the 50-point mark denoting contraction.

Elsewhere, some earnings are on tap this week, including results from software firms Zscaler Inc (NASDAQ:ZS) and Salesforce Inc (NYSE:CRM), server chips maker Broadcom Inc (NASDAQ:AVGO), and retailer Dollar Tree Inc (NASDAQ:DLTR). 

(Ambar Warrick contributed reporting.)