Dow Jones ends 350 points lower but recovers from lows – Here's what led to the fall and recovery

Benchmark indices on Wall Street had a down day in mid-week trading on Wednesday, October 7, as bond yields surged along with fears of higher inflation. However, a retreat in yields towards the second half of the session led to a recovery from the intraday lows as well.

The Dow Jones ended the session with losses of 350 points. At the day’s low, the index was down over 600 points as well. The S&P 500 and Nasdaq retreated from record high levels but outperformed the Dow by not falling as much. Both indices ended with losses of 0.2% each.

Banking stocks led the underperformance on the Dow Jones on fears that higher interest rates will hinder borrowing activity going forward.

The US 10-year treasury yield had, at one point during the session, surged to a high of 5.35%, the highest level since 2002. However, a $39 billion bond auction of the 10-year note, which received “strong” demand, led to a slight cool-off from those levels, triggering a market recovery as well.

However, the US treasury had to pay a yield of 5.3% on the bond auction, the highest it has paid since 2000.

The US Treasury sold bonds worth $58 billion in three-year notes on Tuesday, and plans another $22 billion sale of a 30-year note on Thursday.

Minutes from the latest US Federal Reserve meeting pointed to another rate hike this year, but did not provide clarity on when will that happen. The Fed has two more policy meetings later this year, one on October 28, and the other on December 9.

“With regard to the outlook for monetary policy beyond the current meeting, most participants assessed that another increase in the target range for the federal funds rate would likely be appropriate by year end,” a statement in the minutes document read.

Elsewhere, Levi Strauss reported results for the third quarter of its financial year, where its revenue was largely in-line with expectations, while its Earnings Per Share (EPS) was a beat. The company also raised its full-year EPS outlook courtesy of the tariff refunds it received, but the sales forecast for the year was cut to 7%, the lower end of the 7% to 7.5% range projected earlier. The stock ended 2% lower in extended trade, having declined 5% during the regular session.

Oil prices remained steady despite a storm in the Gulf of Mexico shutting output for over 5,10,000 million barrels per day, that amounts to a quarter of the output in the region.

Initial jobless claims will be reported later today, along with quarterly results from PepsiCo, followed by a speech from St. Louis Fed Chief Alberto Musalem.