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S&P, Nasdaq weak as manufacturing stokes Fed concerns

STORY: The S&P 500 and Nasdaq fell for a second straight session on Wednesday. Treasury yields jumped after manufacturing data indicated inflation is likely to remain stubbornly high, while comments from Federal Reserve policymakers supported more interest rate hikes.

The Dow, alone among the major indices, finished a hair higher. It got a boost from Caterpillar, which saw its shares rise after the construction equipment maker said it had reached a tentative deal with a union that represents workers at four of its facilities.

But the Nasdaq lost two-thirds of one percent while the S&P 500 dropped about half-of-one-percent.

The yield on 10-year notes topped 4% for the first time since November after the Institute for Supply Management's survey showed U.S. manufacturing contracted in February and prices for raw materials increased last month.

Fanning fears about persistent inflation and rising interest rates, Minneapolis Fed President Neel Kashkari, a voter in the rate-setting committee in 2023, said he is "open-minded" on either a 25-basis point or a 50-basis point rate hike in March. On a similar note, Atlanta Fed President Raphael Bostic wrote that Fed policy would have to remain tight "well into 2024".

These statements from Fed members come as no surprise to Johan Gahn, head ETF market strategist with Allianz Investment Management.

“They're going to keep their, you know, steady hand on the tiller so to speak and the hawkish tiller on this. base pushing the rates up further, they're gonna keep the rates up there for longer and they would much rather be wrong by cutting rates late. In other words, inflation that they can that way they can win the inflation war, but it would be at the expense of a potential recession. They'd rather do that than to cut rates early and. In other words, aiming for a soft landing but at the same time having re-surging inflation risk on the back of that"

Besides Caterpillar, other stocks of note include Tesla which dropped ahead of its investor day event. The electric automaker is readying a production revamp of its top-selling Model Y, Reuters reported, citing people familiar with the plan.

Also, Novavax, which plunged after the COVID-19 vaccine maker raised doubts about its ability to remain in business and announced plans to slash spending as it prepares for a fall vaccination campaign.