U.S. stocks looked headed for back-to-back losses after opening in the red on Thursday as investors digested a batch of optimistic economic data, along with hawkish rhetoric from the Federal Reserve.
How are stocks trading
- S&P 500 SPX, +0.03% was off 6.9 points, or 0.2%, to 4,267.
- Dow Jones Industrial Average DJIA, -0.20% was down 100 points, or 0.3%, at 33,879.
- Nasdaq Composite COMP, +0.11% shed 32 points, or less than 0.2%, to 12,903.
On Wednesday, the Dow Jones Industrial Average DJIA, -0.20% fell 172 points, or 0.5%, to 33980, snapping a five-day winning streak, while the S&P 500 SPX, +0.03% declined 31 points, or 0.72%, to 4274. The Nasdaq Composite COMP, +0.11% dropped 164 points, or 1.25%, to 12938. The Nasdaq Composite is up 21.5% from its mid-June low but remains down 17.3% for the year to date.
What’s driving markets
Following a sizzling mid-summer rally that carried the S&P 500 more than 17% higher off its mid-June lows, U.S. stocks appear to be taking a breather this week following the release of Fed minutes that reinforced the notion that the world’s largest central bank isn’t about to stop hiking interest rates any time soon.
See: Did the stock market ‘misinterpret’ Fed again? What strategists say about the reaction to the July minutes
According to one analyst, resurgent fretting over central bank monetary policy tightening is being used as an excuse for profit taking.
“After a very strong run for risk assets thanks to a narrative that we might have seen ‘peak inflation,’ Wednesday put a stop to that as multiple headlines came through that poured cold water on the prospect that central banks were about to let up on hiking rates,” said Henry Allen, macro strategist at Deutsche Bank.
Outside of the U.S., Norway’s central bank gave global markets another hawkish jolt by raising rates by 50 basis points to 1.75%.
Steve Sosnick, chief strategist at Interactive Brokers, blamed the mid-week pullback on stretched investor positioning as the market became overbought thanks to “momentum chasers, trend followers and FOMO.”
He also warned that the market has been hearing what it wants to hear from the Fed, beginning with Fed Chairman Jerome Powell’s comment last month that the Fed had succeeded in raising its policy rate to “neutral”. Wednesday’s minutes showed that other senior Fed officials disagreed with this assessment.
“This last piece of the rally I think was triggered by Powell’s neutral comment, and I think that is on much more tenuous footing,” Sosnick added.
See: Federal Reserve officials back moving interest rates higher in order to slow the economy, minutes show
In the Treasury market, bond yields were a touch softer on Thursday after rising a day earlier. The 10-year TMUBMUSD10Y, 2.850% yield was off by three basis points to 2.851%.
On the U.S. economic data front, investors digested initial jobless claims, which showed that the number of Americans applying for unemployment benefits decreased by 2,000 last week from a revised 252,000 during the first week of August.
See: Jobless claims fall to 250,000 and show little sign of surging layoffs
The Philadelphia Fed Index of local manufacturing activity came in at 6.2, well above the FactSet consensus of minus five.
Despite these relatively robust data, economists asserted that markets still have reason to be concerned about an economic slowdown in the U.S. and abroad.
Nathan Sheets, global chief economist at Citi, said that even though financial markets had become more positive of late, “we remain concerned about the underlying fundamentals of the global economy. Our sense is that economic performance is likely to be plagued by high inflation, slowing real GDP growth, and rapidly tightening monetary policy for some time to come.”
Related: Expect rolling recessions as Citi cuts economic forecasts
In other data, U.S. existing-home sales fell 5.9% to a seasonally adjusted annual rate of 4.81 million in July.
Single-stock movers
- Following a massive runup, shares of Bed Bath & Beyond Inc. BBBY, -22.14% were down by more than 26% after GameStop Corp. Chairman Ryan Cohen disclosed he’s planning to sell his big stake in the company just months after he bought it.
- Shares of Kohl’s Corp. KSS, -4.62% tumbled 5.4% after the department store chain reported fiscal second-quarter profit that missed expectations.
- Cisco Systems Inc. CSCO, +6.82% forecast stronger-than-expected revenue growth in the months ahead while reporting its second-quarter earnings on Wednesday night. Shares were off slightly in recent trade.
Other markets
- West Texas Intermediate crude rose 1.9% to just under $90 a barrel in recent trade.
- The ICE U.S. Dollar Index DXY, +0.43%, a gauge of the dollar’s strength against a basket of rivals, was up 0.1%. Gold GC00, +0.01% was modestly higher, up 0.2%, after three days of declines.
- Japan’s Nikkei 225 NIY00, +0.05% shed 1% during Asian market hours on Thursday, while Hong Kong’s Hang Seng 11, -3.11% index fell 0.8% and China’s Shanghai Composite SHCOMP, -0.46% fell 0.5%.