US stocks fell after a two-day rally and oil continued its relentless rise, fueling worries about inflation and measures by central banks to contain it.

The S&P 500 ended near session lows, with all but one of the 11 major sectors in the red. The tech-heavy Nasdaq 100 dropped 0.8 per cent after rising as much as 0.5 per cent. Chipmakers were under pressure after Intel Corp.’s chief financial officer said the current quarter wasn’t going as well as expected. The stock fell more than five per cent and the Philadelphia Semiconductor Index lost almost 2.5 per cent.

Losses deepened as the Securities and Exchange Commission chief previewed overhauls to market rules in the agency’s most-direct response yet to last year’s wild trading in GameStop Corp. and other meme stocks. 

Benchmark Treasury yields topped the psychological threshold of three per cent. Oil climbed above US$120 a barrel as inventory data highlighted the supply crunch.

“Investors are nervous about being in no-man’s land as we recover from the bear market last month,” Mike Bailey, director of research at FBB Capital Partners, said. “The two big worries were the China lockdowns and inflation, stemming from energy and the Ukraine conflict. Now we are playing whack-a-mole with global macros, and we just knocked out one, with China, but the other problem with inflation and energy is coming back with a vengeance.”

Sentiment remains fragile on concerns rising rates will stifle economic growth and the outlook for corporate earnings. The European Central Bank Thursday is set to wind down trillions of euros of asset purchases in a prelude to a rate hike expected in July, while data on US consumer prices later in the week is expected to keep pressure on the Federal Reserve to hike rates. 

US CPI data on Friday is expected to show inflation picked up in May from a month earlier, while slowing slightly from a year earlier but staying above the eight per cent level. That’s likely to keep pressure on the Fed to stick to aggressive rate hikes. 

More market commentary

• “We’re in another environment where the Fed and the inflation outlook, in particular, continue to dictate the direction of the market,” Kara Murphy, CIO of Kestra Holdings, said by phone. “And we still have a little ways to go -- we know that the Fed is expected to have a couple of very large hikes in the not-too-distant future. Whether the market recovers from here or falls more depends on whether these hikes that are already built into the market do their job.”
• “We believe market pricing of recession risk is more likely to increase rather than decrease from here, and still-expensive valuations do not provide adequate compensation for the downside risks to activity and earnings,” Evan Brown and Luke Kawa at UBS Asset Management wrote in a report.
• “In the face of such high inflation, uncertainty in the global macro, fiscal cliff here in the US, I think it will be a stretch to really expect a soft landing,” Jimmy Chang, chief investment officer at Rockefeller Global Family Office, said on Bloomberg TV. “Unfortunately, the Fed put is kaput for now.”

Energy shares extended this year’s rally on Wednesday as oil gained after crude inventories in the largest storage hub and gasoline stockpiles dropped. West Texas Intermediate futures rose more than two per cent to more than US$122 a barrel.

Key events to watch this week:

• European Central Bank rate decision, Christine Lagarde briefing, Thursday
• China trade, new yuan loans, money supply, aggregate financing. Thursday
• US CPI, University of Michigan consumer sentiment Friday
• China CPI, PPI Friday

Some of the main moves in markets:

Stocks

• The S&P 500 fell 1.1 per cent as of 4 p.m. New York time
• The Nasdaq 100 fell 0.8 per cent
• The Dow Jones Industrial Average fell 0.8 per cent
• The MSCI World index fell 0.6 per cent

Currencies

• The Bloomberg Dollar Spot Index rose 0.3 per cent
• The euro rose 0.1 per cent to US$1.0715
• The British pound fell 0.4 per cent to US$1.2540
• The Japanese yen fell 1.3 per cent to 134.26 per dollar

Bonds

• The yield on 10-year Treasuries advanced six basis points to 3.03 per cent
• Germany’s 10-year yield advanced six basis points to 1.35 per cent
• Britain’s 10-year yield advanced three basis points to 2.25 per cent

Commodities

• West Texas Intermediate crude rose 2.7 per cent to US$122.67 a barrel
• Gold futures rose 0.2 per cent to US$1,855.60 an ounce