Yields on U.S. Treasuries climbed while stocks slipped as traders digested commentary from Federal Reserve officials’ last meeting.

The S&P 500 fell 0.2 per cent following the release of the minutes of the Fed’s June meeting which indicated hawkish leanings from some voting members. The gathering threw Wall Street for a loop as officials paused their rate-hiking cycle after 10 consecutive increases. Among Wednesday’s notable movers, United Parcel Service Inc. dropped as employees moved closer to a strike over pay while the cryptocurrency exchange Coinbase Global Inc., fell after a downgrade.

The yield on policy-sensitive two-year Treasuries inched up to 4.94 per cent, while the 10-year advanced to 3.93 per cent. That inverted yield curve is often read as a sign of a coming economic slump. The Fed has forecast two additional rate increases this year which could further weigh on economic growth and corporate profits. The Fed’s next rate decision is due in three weeks.

“I am the most bearish I have ever been on the economy without being in a recession, and it’s because of the yield curve, the contraction of money and QT at the same time they are hiking rates,” Ed Hyman, founder and chairman of Evercore ISI, said on Bloomberg Television.

Swaps traders are factoring in at least one more quarter-point hike by September as bets on the Fed easing up on its tightening policy are pushed further down the road. Wednesday’s minutes showed division among members of the Federal Open Market Committee where — despite the unanimous vote to pause — some would have preferred another hike in June amid a tight labor market. 

 “This adds to the high probability the Fed hikes again on July 26,” Ian Lyngen, a strategist with BMO Capital Markets wrote. “The FOMC minutes deliberately left investors with the impression that June’s pause was a close call and that a July hike is the committee’s base case scenario.”

Yet, many parts of the equity market have largely shrugged off the threat of higher interest rates, with the Nasdaq 100 ending the day little changed, bolstered by gains in mega-cap stocks including Meta Platforms Inc. and Alphabet Inc.

“Either the market does not believe the Fed’s going to raise a lot more, or the market is very disconnected from reality. Because if the Fed raises lets say another 50 basis points, then the probability of a recession increases pretty substantially. And these multiples become more difficult to justify,” said Chetan Jindal, chief investment officer of Greenwich Ivy Capital, LLC.

Investors will be closely watching Friday’s June employment report will for signs of a cooling labor market. Lyngen sees the upcoming data as likely to fuel debate over a hike or pause in September.

“Our view is that the recession won’t strike until next year,” said Benjamin Kirby, co-head of investments at Thornburg Investment Management. “The path of least resistance for risk markets is higher because inflation is falling, the job market and consumer spending are robust, and most professional money managers remain underweight risk.”

A gauge of the dollar rose against all of its Group-of-10 peers while gold slid. Crude rose above US$72 a barrel after Saudi Arabian and Russian output cuts earlier this week. 

Key Events This Week:

• New York Fed President John Williams in “fireside chat” at meeting of the Central Bank Research Association at the New York Fed, Wednesday
• U.S. initial jobless claims, trade, ISM services, job openings, Thursday
• Dallas Fed President Lorie Logan speaks on a panel about the policy challenges for central banks at CEBRA meeting, Thursday
• U.S. unemployment rate, nonfarm payrolls, Friday
• ECB’s Christine Lagarde addresses an event in France, Friday

Some of the main moves in markets today:

Stocks

• The S&P 500 fell 0.2 per cent as of 4:02 p.m. New York time
• The Nasdaq 100 was little changed
• The Dow Jones Industrial Average fell 0.4 per cent
• The MSCI World index fell 0.5 per cent

Currencies

• The Bloomberg Dollar Spot Index rose 0.2 per cent
• The euro fell 0.2 per cent to US$1.0854
• The British pound was little changed at US$1.2701
• The Japanese yen fell 0.1 per cent to 144.67 per dollar

Cryptocurrencies

• Bitcoin fell 1.2 per cent to US$30,445.29
• Ether fell 1.7 per cent to US$1,908.46

Bonds

• The yield on 10-year Treasuries advanced eight basis points to 3.93 per cent
• Germany’s 10-year yield advanced two basis points to 2.48 per cent
• Britain’s 10-year yield advanced eight basis points to 4.49 per cent

Commodities

• West Texas Intermediate crude rose 3.1 per cent to US$71.92 a barrel
• Gold futures fell 0.3 per cent to US$1,923.80 an ounce