Treasuries sank as a handful of companies flooded the market with billions of dollars in debt sales before this month’s key economic data and the Federal Reserve’s rate decision. Stocks fell and the dollar hit the highest since March as a rally in oil added to concern about inflation.

Bonds were hit across the U.S. curve, with 10-year yields approaching 4.3 per cent. At least 40 businesses tapped high-grade markets around the world Tuesday after a seasonal slowdown and the recent surge in Treasury rates.

“Investors are comfortable with the narrative that the bulk of the selling pressure was a function of an atypically heavy corporate issuance calendar as the market returns from vacation season,” said Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets. “We’re comfortable with this interpretation and will add that rate-lock unwinds will, presumably, be as supportive as their initiation was damaging to Treasuries.”

The S&P 500 ended below 4,500, an index of small caps slid about 2 per cent and gauge of homebuilders sank 5.5 per cent. Energy and tech shares outperformed. 

Fed Governor Christopher Waller said policymakers can afford to “proceed carefully” with tightening given recent data showing inflation continuing to ease. “There is nothing that is saying we need to do anything imminent anytime soon,” Waller told CNBC. Meantime, Fed Bank of Cleveland President Loretta Mester said the central bank may need to raise rates “a bit higher,” but stopped short of saying what officials should do at their next meeting.

“The Fed is sailing in shallow waters in a thick fog,” said David Kelly, chief global strategist at J.P. Morgan Asset Management. “It should be moving very slowly and be ready to halt or reverse its monetary tightening.”

Goldman Sachs Group Inc. now sees a 15 per cent chance the U.S. will slide into recession, down from 20 per cent previously as cooling inflation and a still-resilient labor market suggest the Fed may not need to raise interest rates any further.

SEPTEMBER OUTLOOK

To Chris Senyek at Wolfe Research, last week’s “bad news is good news” trading action was a sign that the market continues to strongly believe in the “disinflation” and “soft landing” narratives that have driven up stocks over the past six months.

“Unfortunately, our sense is that bulls aren’t going to be able to have their cake and eat it too,” Senyek noted. “We still expect stickier-than-expected inflation into a persistent price-wage spiral, higher oil prices, and housing market strength, and that the FOMC will hike in November and/or December.”

The worst month of the year for U.S. equities is upon us, but a bevy of positive market signals suggest it may not be so bad this time around. While seasonal trends place September in last place for stock market performance, returns have been most robust in times the S&P 500 gained between 10 per cent and 20 per cent year-to-date through August, according to Bank of America Corp. chief technical strategist Stephen Suttmeier.

Such an advance through August has preceded a market move higher in the last four months of the year 91 per cent of the time, with an average jump of 7.6 per cent. If that trend holds up, the S&P 500 could rise to as high as 4,875 before 2023 closes out. That would imply a gain of about 8 per cent from Friday’s close.

JPMorgan Chase & Co.’s Marko Kolanovic reiterated Tuesday that investors should fade the artificial-intelligence induced stock-market rally, arguing that he would turn more optimistic on equities if interest rates begin falling globally in the near term. Meantime, Morgan Stanley’s Michael Wilson said U.S. equity investors are in for disappointment as economic growth is set to be weaker than expected this year.

Corporate Highlights:

• United Airlines Holdings Inc. dropped after a temporary grounding of its aircraft nationwide due to an unspecified equipment outage.
• Private equity giant Blackstone Inc. and vacation home-rental company Airbnb Inc. climbed on news they will be added to the S&P 500 this month.
• Oracle Corp. advanced after Barclays Plc upgraded the software company to overweight, calling it a “multi-year growth story.”
• Digital World Acquisition Corp., which is working to take Donald Trump’s nascent media company public, climbed after reports that the blank-check firm won investor approval to extend its deadline for another year, bolstering hopes the deal will be completed.
• Manchester United Plc sank after a report in the Mail On Sunday that said the Glazer family is going to take the club off the market after failing to receive offers that match their asking price.
• Arm Holdings Ltd.’s initial public offering, planning to raise US$4.87 billion at the top of its range, shows the premium valuation the British chip designer was seeking from a New York listing may not fully materialize.

Key events this week:

• Eurozone retail sales, Wednesday
• Germany factory orders, Wednesday
• U.S. trade, ISM services index, Wednesday
• Canada rate decision, Wednesday
• Bank of England Governor Andrew Bailey testifies to the UK parliament’s Treasury Select Committee, Wednesday
• Federal Reserve issues Beige Book economic survey, Wednesday
• Boston Fed President Susan Collins speaks, Wednesday
• Dallas Fed President Lorie Logan speaks, Wednesday
• China trade, forex reserves, Thursday
• Eurozone GDP, Thursday
• U.S. initial jobless claims, Thursday
• Bank of Canada Governor Tiff Macklem to speak on the Economic Progress Report, Thursday
• Atlanta Fed President Raphael Bostic speaks, Thursday
• New York Fed President John Williams participates in moderated discussion at the Bloomberg Market Forum, Thursday
• Japan GDP, Friday
• Germany CPI, Friday
• U.S. wholesale inventories, consumer credit, Friday

Some of the main moves in markets:

Stocks

• The S&P 500 fell 0.4 per cent as of 4 p.m. New York time
• The Nasdaq 100 rose 0.1 per cent
• The Dow Jones Industrial Average fell 0.6 per cent
• The MSCI World index fell 0.6 per cent

Currencies

• The Bloomberg Dollar Spot Index rose 0.7 per cent
• The euro fell 0.7 per cent to US$1.0722
• The British pound fell 0.5 per cent to US$1.2562
• The Japanese yen fell 0.9 per cent to 147.72 per dollar

Cryptocurrencies

• Bitcoin fell 0.6 per cent to US$25,683.51
• Ether rose 0.3 per cent to US$1,632.29

Bonds

• The yield on 10-year Treasuries advanced eight basis points to 4.26 per cent
• Germany’s 10-year yield advanced three basis points to 2.61 per cent
• Britain’s 10-year yield advanced six basis points to 4.53 per cent

Commodities

• West Texas Intermediate crude rose 1.3 per cent to US$86.70 a barrel
• Gold futures fell 0.8 per cent to US$1,951.80 an ounce