U.S. stocks extended losses in afternoon trade on Thursday after a batch of economic data bolstered expectations that the Federal Reserve will continue to aggressively raise interest rates in its bid to rein in the tide. ‘inflation.
How Stocks Trade
-
The Dow Jones Industrial Average DJIA,
-1.54%
lost 614 points, or 2.1%, to 29,070. -
The S&P 500 SPX,
-2.11%
fell 100 points, or 2.7%, to 3,619. -
The Nasdaq Composite COMP,
-2.84%
fell 394 points, or 3.6%, to 10,657.
Stocks erased gains on Wednesday, when the Dow Jones Industrial Average rose 549 points for its biggest percentage point gain since July, while the S&P 500 and Nasdaq posted their biggest gains in addition to a month.
What drives the markets?
The impact of the Bank of England’s intervention to calm the UK bond market on Wednesday faded in global markets as yields on Treasury bills and European government debt rose again.
On the economic data front, the latest update to second-quarter GDP figures confirmed that the US economy contracted at an annualized 0.6% in the second quarter. However, a weekly report on jobless claims in the United States found that the number of Americans initially claiming jobless benefits fell by 16,000 to 193,000 in the week ending September 24, the lowest level since April.
The jobless claims data helped weigh on equities by bolstering the view that the Fed will stick to its plans to keep raising interest rates.
“I think we’ll see rates continue to rise here in the United States, since we’re not in restrictive territory yet, and rate cuts won’t happen as easily or as soon as the market expects them to,” he said. said Michael Wang, CEO and founder of Prometheus Alternative Investments, told MarketWatch.
“Expect further tightening from central banks, including the Fed, as markets seek stability and transparency for the rest of the year, which will impact the upcoming earnings season. Investors will be watching whether [Fed Chair Jerome] Powell and the Fed are sticking to their guns to raise rates regardless of the short-term impact to get inflation under control,” he said.
In a note to clients, a team of bond analysts from Barclays explained why the market impact of the Bank of England’s intervention was so fleeting.
While the bond market intervention may have averted a crisis, it did little to change the macroeconomic backdrop, and investors are instead forced to heed expectations that a combination of monetary and fiscal stimulus could further fuel inflationary pressures.
“…[A]After the end of the first rounds of short hedging and position netting, we fear that the markets may return to fixating on one issue: a significant fiscal stimulus is now accompanied by an indefinite monetary stimulus for the next few weeks. said the Barclays macro strategist team wrote.
As a result, borrowing costs are expected to continue to rise as most of the world’s major central banks rush to fight inflation, which in turn diminishes demand for risky assets.
The benchmark 10-year Treasury yield TMUBMUSD10Y,
climbed to 3.75%.
Apple Inc. AAPL has been blamed for helping to exacerbate weakness in stocks, while contributing strongly to the more than 3% drop in the Nasdaq, as reports of iPhone production cuts continued to weigh on the giant. consumer technology. The shares are down 5.9% in the latest trades.
Investor anxiety manifested in the CBOE Volatility Index, or the VIX, VIX,
a measure of the S&P 500’s expected volatility known as the Wall Street Fear Gauge. The VIX, whose long-term average is around 20, was hovering around 33.
In a note to clients on Thursday, Nicholas Colas, co-founder of DataTrek Research, said the VIX would likely need to hold above 30 until “at least Friday” to signal a “tradeable low.”
See: Wall Street’s “fear gauge” may hold the key to the timing of the next market rally. Here’s why.
Cleveland Fed President Loretta Mester said in an interview with CNBC that interest rates in the United States have not yet reached restrictive territory and the Fed has not yet reached a point where it should consider suspending rate hikes.
St. Louis Fed President James Bullard has defended the Fed against claims that its policy of aggressive interest rate hikes is creating impossible conditions for foreign central banks.
See: Fed rate hikes didn’t surprise foreign central banks, Bullard says
San Francisco Fed President Mary Daly was scheduled to speak at an event at 4:45 p.m. ET.
Actions in the spotlight
-
Starbucks Corp.
SBUX,
-0.62%
shares fell 1.2% after the company announced on Wednesday that it was increasing its quarterly dividend to 53 cents per share. -
Carmax inc.
KMX,
-24.60%
shares fell 23.7%, making it the worst performer in the S&P 500, following weak earnings and a warning about lower consumer demand for discretionary buying. -
General Motors Co.
GM,
-5.65%
and Tesla Inc.
TSLA,
-6.81%
also fell in tandem with Carmax as the company’s consumer spending warning weighed on automakers and their suppliers. -
Amazon.com Inc.
AMZN,
-2.72%
Shares fell 3.7% after the company announced plans to raise employee pay. -
Bed Bath and Beyond Inc.
BBBY,
-4.18%
fell 6.5% on Thursday, after the homewares retailer reported a much larger-than-expected second-quarter fiscal loss, but showed ‘accelerated margins’ had helped improve the surplus on stocks.
— Joseph Adinolfi and Jamie Chisholm contributed to this article.