U.S. stocks closed lower on Wednesday as fresh business activity and pricing data fueled concern that inflation may remain persistent. Treasury yields rose sharply, while comments from Federal Reserve officials increased expectations that policy could be adjusted again. Futures markets now indicate that the federal funds rate could be 50 basis points above its current range by year-end.
Nasdaq Leads Broad Market Decline
The Dow Jones Industrial Average fell 0.7% to 51,511. The S&P 500 declined 0.8% to 7,706, while the Nasdaq Composite dropped 1.1% to 26,936, reversing course after setting a record close on Tuesday.
Moves in the bond market were the main source of pressure on equities. S&P Global's preliminary September purchasing managers' index showed U.S. business activity expanding at its fastest pace in five years, but also pointed to mounting price pressures. The two-year Treasury yield rose 11.8 basis points to 4.885%. The 10-year yield climbed 13.7 basis points to 5.104%, its highest level since July 2007, while the 30-year yield added 8.9 basis points to 5.391%.
Chris Williamson, chief business economist at S&P Global Market Intelligence, said supply-chain disruptions had created a substantial backlog of orders, giving companies greater ability to raise prices. He also said higher energy costs could push selling prices and inflation higher over the coming months.
The PMI data came after the Federal Reserve's September meeting, at which the central bank raised rates for the first time in three years, citing still-elevated inflation as one reason. At an event in Chicago, Fed governor and voting member of the Federal Open Market Committee Michael Barr said further policy adjustments might still be needed to ensure inflation returns to target in a timely manner.
October Rate-Hike Odds Rise to 66%
Interest-rate futures showed a clear increase in expectations for a Fed hike in October. The implied probability rose to 66% from 55% a day earlier, while the probability of another hike in December stood at 53%.
The shift in rate expectations pushed short-term Treasury yields higher and put renewed pressure on equity valuations, particularly in growth and technology stocks, which are more sensitive to interest rates.
McDonald's Posts Steepest One-Day Drop Since April 2025
McDonald's shares fell 4.8%, their largest one-day decline since April 4, 2025. The stock is down about 12% since the company released its quarterly results in early August.
At McDonald's 2026 investor day, Chief Executive Chris Kempczinski said high inflation and stagnant customer traffic were limiting growth across the restaurant industry. He also said he did not expect current conditions to change quickly.
McDonald's second-quarter revenue and profit both grew in the mid-single digits, while U.S. comparable-store sales increased 0.8%. However, pressure on consumer spending and rising costs remain key concerns for investors. Argus Research analyst John Staszak said the current share price did not fully reflect the appeal of the company's dividend or management's plans to improve operating efficiency and expand its store base. He maintained a "buy" rating on the stock.
Paychex Falls 8.8% as Revenue Growth Slows
Paychex, which provides human resources, payroll and benefits services to small and midsize businesses, fell 8.8%. It was the stock's largest one-day decline in more than a year and the weakest performer among S&P 500 constituents.
The company reported that earnings per share for the first quarter of fiscal 2027 rose 10% year over year to $1.34, while revenue increased 6% to $1.6 billion. Although the results exceeded Wall Street expectations, growth slowed sharply from the previous quarter, when earnings per share rose 11% and revenue increased 17%.
Paychex expects second-quarter fiscal 2027 revenue growth to slow further to 4% year over year. Chief Financial Officer Robert Lewis Schrader said the outlook reflects a higher comparison base from the prior year, including two one-time items recognized in the second quarter of fiscal 2026 that lifted the year-earlier figure.
Inflation, Treasury yields and interest-rate expectations remained the central market drivers. Upcoming economic data and Fed officials' comments on prices and employment will continue to influence bond yields and stock valuations. The reactions in McDonald's and Paychex shares also showed how company-specific factors, including customer traffic, costs and growth guidance, can amplify market moves.