Despite a partial recovery in late trading stages, major US stock averages ended significantly lower on Thursday. A risk rally that lifted stocks the previous day hit a stumbling block as another fell below forecast increase in weekly jobless claims raised concerns about further Fed hawkishness as the job market remains strong.
The Nasdaq Composite (COMP.IND) ended up -2.8%the S&P 500 (SP500) closed -2.1% and the Dow (DJI) rounded -1.5%.
The Nasdaq led the decline, falling 314.13 points to 10,737.51 points. The S&P 500 fell 78.57 points to end at 3,640.47, while the Dow fell 458.13 points to end at 29,225.61. The S&P reached as high as 3,610.40 before bouncing back later in the day.
All 11 S&P sectors ended in the red. Utilities led the retreat, falling more than 4%. Consumer discretionary was another notable loser, falling 3%. Energy was the best performer, although it still posted a fractional loss.
“A cacophony of disasters has come together to bring markets to their knees. Incessant inflation, rising interest rates, cursed currencies and the Fed’s failure have caused the S&P 500 to bounce back to the low of 3600 in June,” said David. Alton Clark of Clark Capital.
“Unfortunately, we may still have a downside as revenues need to be set lower, as evidenced today by Carmax’s report and Apple’s downgrade,” he added. “I’d say we’re still at a 10-15% disadvantage in the cards. Based on the S&P 500 earnings resetting lower to $200 and the historic 100 average S&P 500 multiple of 16, that brings us to 3,200 .”
Looking at the action in fixed income, yields rose as the yield on US 10-year Treasuries (US 10Y) climbed 5 basis points to 3.76%. The US 2-year yield (US2Y) rose by 8 basis points to 4.17%.
Elsewhere, Citi reiterated its bullish stance on the US dollar through the end of the year. The company said its forecast was “based on liquid asset weakness, policy divergence and U.S. energy sovereignty.”
“We don’t envision Plaza 2.0,” Citi added, referring to the Plaza accord of the 1980s that was designed to weaken the US dollar. “USD positioning looks clean based on some metrics, so we think its strength could continue unless the story shifts.”
In economic terms, US GDP estimates remained unchanged at -0.6% for the second quarter, while PCE estimates rose to +7.3% from the previous estimate of 7.1%.
In addition, corporate profits rose 6.2% to $131.6 billion in the second quarter.
In terms of the labor market, first-time jobless claims hit their lowest point in 8 months as claims fell 16K to 193K compared to the 218K figure projected.
Amid market concerns that continued strength in the job market will leave the door open to an aggressive Fed, Pantheon Macro noted: “After 10 consecutive weekly undershoots of the consensus, it’s fair to say that jobless claims have fallen. have followed the soaring path expected by many forecasters in the spring. We disagreed with that story, but this week’s number is remarkable.”
The company added: “With labor still very hard to come by, companies are likely holding on to people who would have been laid off under normal circumstances. At the moment, the labor market easing the Fed wants is unlikely to come. due to rising layoffs.
AllianceBernstein stated in its global macro outlook for the fourth quarter: “Unfortunately, financial markets, higher interest rates, lower stock prices and wider credit spreads are part of the solution to the inflation problem. Much of the work has already been done, but we think it is nevertheless premature to make everything clear.”
Of the active stocks, Apple’s shares fell after the iPhone maker downgraded from BofA over concerns about weaker consumer demand.
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