Equities turn higher as Treasury yields drop from highs

By Chuck Mikolajczak and Johann M Cherian

NEW YORK, ‌Oct 1 (Reuters) - US stocks turned ​higher on ​Thursday in choppy trade, with the S&P 500 falling early to a two-week low but then rebounding sharply as a global bond selloff reversed course after sending US Treasury yields to multi-decade highs.

Stocks were under pressure in early trading as economic data ‌kept pointing to a solid economy with persistent price pressures.

The Labor Department said weekly initial jobless claims dipped to ⁠197,000, below the 200,000 forecast of economists polled by Reuters. It was the latest in a string of reports this week that indicated the labor market was on solid footing, ‌ahead of the government payrolls report on ‌Friday.

Treasury yields extended gains, and the benchmark 10-year Treasury note hit a 24-year high, after closing out September with its biggest quarterly gain since 1994, and pushed equities lower after the Institute for Supply Management said its manufacturing PMI dipped to 54.5 last month from 54.6 in ​August and showed a jump in input prices, raising inflation worries.

TREASURY YIELDS REVERSE COURSE

But yields reversed course as buyers stepped in, and further declined after Federal Reserve Vice Chair Philip Jefferson suggested the central bank may be patient before hiking rates again, following a 25 basis point ⁠hike in September.

"Even though valuations have come down, the market's still not cheap, so I'm not bearish on the equity market. We can chug along, but I expect higher volatility in both equities ​and bonds," said Scott Welch, chief investment officer at Certuity in Potomac, Maryland.

"Everybody's adjusting to a new normal. There's nothing particularly scary about what's happening in the markets right now; it's just a little bit different than ​what people have been used to operating in over the past few years, ‌and it's going to take some adjustment."

The Dow Jones Industrial Average edged up 3.17 points, or 0.01%, to 50,910.42, the S&P 500 gained 18.58 points, or 0.24%, to 7,670.12 and the Nasdaq Composite climbed 66.63 points, or 0.25%, to ⁠26,927.69.

ENERGY SECTOR LEADS GAINS

Oil prices added to inflation worries. Brent crude jumped nearly 5% a barrel after China suspended fuel exports, threatening to further tighten markets. The jump in crude prices helped boost the S&P 500 energy index almost 2% as the best performing of the 11 major S&P sectors.

Technology also showed some strength, up ⁠0.6% with software shares rallying 1.2% on results from Accenture. The IT consulting firm's shares surged 17% to hit their highest intraday level since mid-February after forecasting full-year ​revenue growth above estimates.

Micron Technology's better-than-expected revenue forecast and $32 billion customer commitments under its supply agreements reinforced faith in the AI trade. Micron shares, however, slipped about 1.7% after nearly quadrupling this year.

Softer-than-expected inflation data on Wednesday further dampened expectations that the Federal Reserve would increase rates at its October meeting, and markets are now pricing ‌in only a 28.2% chance for a hike of at least 25 basis points, down from the 68.6% a week earlier.

Following Jefferson's comments, Minneapolis Federal Reserve President Neel Kashkari said he expects additional rate increases will be ‌needed to restrain the economy going into 2027, though he is unsure about whether the next move should happen later this month.

Advancing issues outnumbered decliners by a 1.04-to-1 ⁠ratio on the NYSE and by a 1.02-to-1 ratio ‌on the Nasdaq.

The S&P 500 posted four new ​52-week highs and 40 new lows, while the Nasdaq Composite recorded 32 new highs and 265 new lows.

(Reporting by Chuck Mikolajczak; additional reporting by Johann M Cherian, Tharuniyaa Lakshmi and Medha Singh in Bengaluru; Editing by Arun Koyyur, Anil D'Silva ‌and David Gregorio)

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