Wall Street Slips Again Wednesday

NEW YORK (AP) -- Wall Street is retreating a bit more Wednesday as its five-week rally loses momentum.

The S&P 500 was 0.4% lower in early trading. It's on pace for a third straight pullback after rallying last week to its highest level in more than a year. The Dow Jones Industrial Average was down 139 points, or 0.4%, at 33,914, as of 9;45 a.m. Eastern time, while the Nasdaq composite was 0.5% lower.

The main event for the day is likely to be testimony on Capitol Hill from Federal Reserve Chair Jerome Powell. The Fed has been at the center of Wall Street's movements for more than a year, as the central bank tries to get the worst inflation in generations under control.

The S&P 500 has rallied roughly 14% this year amid hopes that inflation is coming down quickly enough for the Fed to stop hiking interest rates soon, which could allow the economy to avoid falling into a long-expected recession. But some analysts say stock prices have run too far, too fast when inflation has remained stubbornly high and the Fed may have to keep rates higher for longer. A cadre of stocks in the artificial-intelligence industry have soared to particularly dizzying heights.

The Fed indicated last week that many of its policymakers are expecting to raise rates twice more this year, which would be more than many traders are expecting. In prepared testimony for his appearance before a House committee Wednesday, Powell said, "Inflation pressures continue to run high, and the process of getting inflation back down to 2% has a long way to go."

High rates have already helped cause three high-profile failures in the U.S. banking system. And the industry remains under pressure, even after the federal government acted quickly to provide support.

Smaller and regional banks account for about 50% of U.S. commercial and industrial lending, according to Ann Miletti, head of active equity at Allspring Global Investments. And pressure on these banks would make it tougher for smaller and midsized businesses to get loans, which would hurt the economy.

Miletti said she's leaning toward the probability of a coming U.S. recession because of how much the Fed has already raised rates in such a short time. She said the recession may not be very deep, but it could still last longer than many predict.

"Inflation is retreating," she said, "but it won't be a smooth decline."

In the bond market, yields were rising ahead of Powell's testimony. The yield on the 10-year Treasury rose to 3.77% from 3.72% late Tuesday. It helps set rates for mortgages and other important loans.

The two-year Treasury yield, which moves more on expectations for the Fed, rose to 4.73% from 4.69%.

FedEx stock was swinging between losses and gains after giving a range for forecasted earnings this upcoming fiscal year that was lower than some analysts expected. Its stock was most recently down 0.2% despite reporting stronger profit for the latest quarter than Wall Street forecast.

Winnebago Industries fell 2.8% after it also reported stronger profit for the latest quarter than expected but weaker revenue than forecast.

In markets abroad, stocks continued to tumble in China amid worries about a stumbling recovery for the world's second-largest economy. The Hang Seng in Hong Kong fell 2% for its second straight sharp drop after the Chinese government cut some interest rates by less than some investors had hoped.

Stocks in Shanghai fell 1.3%, and South Korea's Kospi dropped 0.9%.

In Europe, stock indexes were modestly lower.

The FTSE 100 in London fell 0.5% after a U.K. report on inflation came in hotter than expected. That raised speculation that the Bank of England will hike interest rates again at its meeting Thursday.