A slide in bonds dragged down stocks as another weak sale of Treasuries raised concern about swelling supply that could keep driving yields up at a time when the Federal Reserve is in no rush to cut rates.

The U.S. sold US$44 billion of seven-year notes at 4.650 per cent — above the pre-auction level of 4.637 per cent. That’s just a day after two other US offerings totaling $139 billion saw tepid demand. Those bond sales are exerting a growing sway over several asset classes, underscoring how the uncertainties over Fed policy continue to grip markets as inflation shows little signs of moderation. And they come at time when stocks aren’t looking necessarily cheap.

“The “set-up’ right now is quickly becoming a concern,” said Matt Maley at Miller Tabak + Co. “Not only are yields rising again in the US, but they are moving higher in other parts of the world. That is not good news for a stock market that’s trading at 22 times forward earnings.”

The S&P 500 dropped below 5,300. American Airlines Group Inc. tumbled on a disappointing outlook. UnitedHealth Group Inc. led industry losses after saying it sees a “disturbance” coming as states pare enrollees in their Medicaid programs. Marathon Oil Corp. surged as ConocoPhillips agreed to acquire it in a $17 billion deal. BHP Group abandoned its bid for Anglo American Plc.

Treasury 10-year yields climbed seven basis points to 4.62 per cent. European bond issuance this year has topped the €1 trillion ($1.1 trillion) mark more than a week before the previous record. German bond yields hit a six-month high as inflation accelerated. Australia’s latest inflation reading suggested rates will remain high for now.

The US economy expanded at a “slight or modest” pace across most regions since early April and consumers pushed back against higher prices, the Fed said in its Beige Book survey of regional business contacts.

“Consumers are becoming more price-conscious, likely putting pressure on profit margins,” said Jeff Roach at LPL Financial. “We should expect more discounts and incentives as some consumers struggle with persistently high prices.”

Fed Chair Jerome Powell and his colleagues have stressed the need for more evidence that inflation is on a sustained path to their 2 per cent goal before cutting the benchmark interest rate, which has been at a two-decade high since July.

“We continue to believe that US sovereign yields should end the year lower as inflation and economic growth slow and the Fed cuts rates in the last months of the year,” said Solita Marcelli at UBS Global Wealth Management.

Here’s What Traders Are Talking About:

• Hawkish Higher-For-Longer Wagers Continue to Grow: Open Interest
• ECB Should Not ‘Autopilot’ Into Rate Cuts, Says Martins Kazaks
• German Bond Yields Hit Six-Month High as Inflation Accelerates
• BOJ Board Member Sees Chance Weak Yen Will Hasten Next Rate Hike
• Australia’s Elevated Inflation Suggests RBA to Extend Pause

Meantime, the options market is betting that the S&P 500 will see muted swings following this week’s bond auctions and the Fed’s favorite underlying inflation gauge Friday, with traders instead looking ahead to next month’s reading on consumer prices and the central bank’s upcoming meeting.

The benchmark equities gauge is implied to move just 0.5 per cent in either direction following the personal consumption expenditures price index, based on the cost of at-the-money puts and calls, per Stuart Kaiser, Citigroup Inc.’s head of US equity trading strategy. 

The reading is less than the implied move on June 7 — the next jobs report — and CPI and the Fed’s upcoming rate decision — both on June 12, which would be the largest ahead of a central bank meeting since December, Kaiser said.

Economists expect the PCE minus food and energy to rise 0.2 per cent in April. That would mark the smallest advance so far this year for the measure. The overall PCE price index probably climbed 0.3 per cent. Increases this year stand in contrast to relatively flat readings in the final three months of 2023, underscoring uneven progress for the Fed in its inflation fight.

Bank of America Corp. clients were net sellers of US equities for a fourth consecutive week as they offloaded $2 billion dollars worth of shares during the five-day period ended last Friday. 

Outflows came chiefly from hedge funds and retail investors as institutions were net buyers, quantitative strategists led by Jill Carey Hall wrote.

Hedge funds’ exposure to US technology behemoths hit a record high following Nvidia Corp.’s estimate-thumping earnings report last week, according to Goldman Sachs Group Inc.’s prime brokerage.

The so-called Magnificent Seven companies — Nvidia, Apple Inc., Amazon.com Inc., Meta Platforms Inc., Alphabet Inc., Tesla Inc. and Microsoft Corp. — now account for about 20.7 per cent of hedge funds’ total net exposure to U.S. single stocks, the report showed.

Corporate Highlights:

• Exxon Mobil Corp. investors voted in line with board recommendations on all shareholder proposals at its annual meeting Wednesday despite vocal opposition to the company’s lawsuit against activists.
• Abercrombie & Fitch Co. shares jumped after the retailer blew past first-quarter sales estimates, extending its bounce back from the teen fashion graveyard.
• Dick’s Sporting Goods Inc. raised its outlook for the year and reported sales that surpassed analysts’ estimates with strong demand for sports gear across categories.
• Robinhood Markets Inc. announced a plan to repurchase as much as $1 billion of its own shares.
• Lenovo Group Ltd. plans to sell $2 billion worth of zero-coupon convertible bonds to Saudi Arabia’s sovereign wealth fund, part of a broader strategic pact with the tech-hungry kingdom.

Key events this week:

Eurozone economic confidence, unemployment, consumer confidence, Thursday
U.S. initial jobless claims, GDP, Thursday
Fed’s John Williams and Lorie Logan speak, Thursday
Japan unemployment, Tokyo CPI, industrial production, retail sales, Friday
China official manufacturing and non-manufacturing PMI, Friday
Eurozone CPI, Friday
U.S. consumer income, spending, PCE deflator, Friday
Fed’s Raphael Bostic speak, Friday

Some of the main moves in markets:

Stocks

• The S&P 500 fell 0.6 per cent as of 2:45 p.m. New York time
• The Nasdaq 100 fell 0.5 per cent
• The Dow Jones Industrial Average fell 1 per cent
• The MSCI World Index fell 0.9 per cent

Currencies

• The Bloomberg Dollar Spot Index rose 0.4 per cent
• The euro fell 0.5 per cent to $1.0808
• The British pound fell 0.5 per cent to $1.2704
• The Japanese yen fell 0.3 per cent to 157.67 per dollar

Cryptocurrencies

• Bitcoin fell 1.3 per cent to $67,352.01
• Ether fell 2 per cent to $3,753.25

Bonds

• The yield on 10-year Treasuries advanced seven basis points to 4.62 per cent
• Germany’s 10-year yield advanced 10 basis points to 2.69 per cent
• Britain’s 10-year yield advanced 12 basis points to 4.40 per cent

Commodities

• West Texas Intermediate crude fell 0.9 per cent to $79.09 a barrel
• Spot gold fell 0.9 per cent to $2,339.48 an ounce

This story was produced with the assistance of Bloomberg Automation.