Despite a partial rebound in the latter stages of trading, major US stock averages ended considerably lower on Thursday. A risk rally that lifted stocks the day before hit a stumbling block as another under-forecast The rise in weekly jobless claims has raised concerns about the Fed’s continued aggressiveness as the labor market remains strong.
The Nasdaq compound (COMP.IND) ended -2.8%the S&P 500 (SP500) closed -2.1% and the Dow (DJI) completed -1.5%.
The Nasdaq led the decline, losing 314.13 points to close at 10,737.51. The S&P 500 slipped 78.57 points to end at 3,640.47, while the Dow lost 458.13 points to end at 29,225.61. The S&P hit a level of 3,610.40 before bouncing back later in the day.
All 11 S&P sectors ended in the red. Utilities led the decline, falling more than 4%. Consumer discretionary was another notable loser, down 3%. Energy was the best performer, although it still posted a fractional loss.
“A cacophony of cataclysms converged to bring markets to their knees. Relentless inflation, rising rates, cursed currencies and Fed defaults drove the S&P 500 back to June lows of 3,600,” he said. David Alton Clark of Clark Capital.
“Unfortunately, we may have more declines ahead as earnings need to be reset lower, as evidenced today by the Carmax report and Apple’s downgrade,” he added. “I would say we still have a 10-15% downside in the cards. Based on S&P 500 earnings down to $200 and the historical average of 100 S&P 500 multiple of 16, that brings us to 3200. “
Looking at the move in fixed income, yields rose as the 10-year US Treasury yield (US10Y) climbed 5 basis points to 3.76%. The US 2-year rate (US2Y) rose 8 basis points to 4.17%.
Moreover, Citi reiterated its bullish thesis on the US dollar until the end of the year. The company said its forecast was “based on weak liquid assets, policy divergence and U.S. energy sovereignty.”
“We don’t envision a Plaza 2.0,” Citi added, referring to the 1980s Plaza Accord that aimed to weaken the US dollar. “The USD’s positioning looks clean across a number of metrics, so we think its strength can continue unless the narrative changes.”
On the economic front, US GDP estimates were unchanged at -0.6% for the second quarter, while PCE estimates rose to +7.3% from the previous estimate of 7.1% .
Additionally, corporate profits climbed 6.2% in Q2 to $131.6 billion.
In terms of the labor market, initial jobless claims hit an 8-month low, with claims falling 16,000 to 193,000 from the expected figure of 218,000 that had been projected.
As the market worried that continued strength in the labor market would leave the door open for an aggressive Fed, Pantheon Macro commented, “After 10 consecutive weekly consensus understatements, it’s fair to say that insurance claims -unemployment did not follow the sharp rise expected by many forecasters in the spring. We didn’t agree with this story, but this week’s figure is remarkable.”
The company added: “As labor is still very hard to find, companies are likely to retain people who under normal conditions would have been laid off. At this point, the easing of the labor market desired by the Fed therefore seems unlikely via increasing layoffs.
AllianceBernstein said in its fourth quarter global macroeconomic outlook: “Financial markets, higher interest rates, lower stock prices and wider credit spreads are unfortunately part of the solution to the inflation problem. Much of the work has already been done, but we believe it is nevertheless premature to come to the conclusion.
Among active stocks, shares of Apple fell after the iPhone maker received a downgrade from BofA on concerns about weaker consumer demand.
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