US stock market: Dow, S&P close lower as manufacturing data lifts yields

US stock market: The Dow and S&P 500 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.

The Nasdaq closed slightly higher, along with the S&P 500 technology sector (.SPLRCT). An index of semiconductors (.SOX) jumped 1.2 per cent. "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 240.52 points, or 0.60 per cent, to 39,566.85, the S&P 500 (.SPX) lost 10.58 points, or 0.20 per cent, to 5,243.77 and the Nasdaq Composite (.IXIC) gained 17.37 points, or 0.11 per cent, to 16,396.83.

The US rate futures market was pricing in a 58 per cent chance of a rate cut in June, down from about 64 per cent 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.

Key Fed officials - Governor Christopher Waller and Atlanta President Raphael Bostic - have said their preference is for fewer than three cuts this year. Investors will get more clarity on the US central bank's thinking this week, with 13 of 19 Fed officials speaking.

Also, the US monthly jobs report is due on Friday. The majority of S&P 500 sectors were lower, with the real estate (.SPLRCR), healthcare (.SPXHC), and utilities (.SPLRCU) among the worst hit. The energy sector (.SPNY) gained along with stronger crude oil prices.

Among the day's decliners, AT&T (T.N) shares slipped 0.6 per cent after the US telecoms giant announced a massive data leak that affected current and former account holders. Volume on US exchanges was 10.22 billion shares, compared with the 12 billion average for the full session over the last 20 trading days.

Declining issues outnumbered advancing ones on the NYSE by a 1.90-to-1 ratio; on Nasdaq, a 1.73-to-1 ratio favored decliners. The S&P 500 posted 36 new 52-week highs and 2 new lows; the Nasdaq Composite recorded 97 new highs and 74 new lows.