4:13pm: Jobless claims may have nudged the market, but the Fed still holds traders' attention
The Dow closed Thursday up 21 points, less than 0.1%, at 34,001, the Nasdaq added 27 points, 0.2%, to 12,965 and the S&P 500 improved 10 points, 0.2%, to 4,284.
It was a rocky day of trading for the benchmarks, particularly the Dow, which spent the majority of the day underwater. Investors reacted to initial jobless claims, which fell to 250,000 in the week ended August 13, according to the US Department of Labor. Analysts had projected 260,000 claims.
The biggest shadow looming over the market, though, remains the Federal Reserve and likely interest rate hikes.
“The thing in the driver’s seat is the Fed and what’s propelling them — the gas in the Fed’s tank — is inflation,” said Cliff Corso, chief investment officer at Advisors Asset Management, according to CNBC. “I think the market is going to bounce a little bit back and forth probably for the foreseeable future, right now with a positive trend, because the market is still embedding within it the hope that the Fed is wrestling down inflation.”
12.05pm: US markets mixed at midday
The major US indices were mixed, as traders welcomed a boost to oil and gas sales, and as the US dollar index rose to near three-week highs, outperforming both the pound and the euro.
At midday, the Dow Jones Industrial Average was down 0.06% to 33,960, while the S&P 500 was up by 0.25% at 4,284, and the Nasdaq Composite was up by 0.4% at 12,989.
Joshua Mahony, senior market analyst at online trading platform IG, said US manufacturing and jobs data shows improvement, with outperformance over Europe and the potential for a risk-off move helping to lift the dollar.
“The dollar index has broken to a three-week high today, with fears of a potential topping out in equities tallying up with signs of US outperformance over Europe. First inflation, then retail sales, and now we have seen improvement in the jobless claims and the Philly Fed manufacturing survey for the US,” Mahony said in a statement.
He also noted that energy stocks are on the rise, as crude prices see a respite from selling pressure.
“Oil and gas stocks have enjoyed a welcome boost today, following a period of weakness in crude prices that took Brent into a fresh five-month low. Yesterday’s surprise 7.1 million barrel contraction in US inventories helped undermine the bearish breakdown taking shape for crude, lifting hopes that a tightening supply-demand dynamic will push prices upwards once again,” Mahony said.
He did note that, with an economic slowdown seemingly a foregone conclusion for many of the world’s top crude consumers, it looks like this rebound will soon be sold into on the premise of falling demand.
At midday, the major movers included Aligent Technology up by 7% for the second day, and Cisco Systems (NASDAQ:CSCO) was up by 6.2% on a positive outlook as chip supply shortages ease.
On the downside, Walgreens Boots dropped 5% after the company was ordered to pay millions in an Ohio lawsuit over opioids, and online gaming site Netease shed 5.3%.
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9.35am: Wall Street steady at the open
US stocks opened flat as new employment data from the Labor Department has signalled that the American labor market remains tight amid climbing interest rates and decades-high inflation.
For the week ended August 13, initial jobless claims came in at 250,000, below the consensus analyst expectation of 265,000. Claims fell by 2,000 from the previous week.
Just after the open, the three major indexes were steady, with the Dow Jones Industrial Average at 33,976 points, the S&P 500 at 4,277 points, and the Nasdaq Composite at 12,926 points.
Kohl Corporation had tumbled about 9% at the open after the retailer slashed its full-year earnings and sales guidance for the second quarter in a row, while Cisco Systems (NASDAQ:CSCO) Inc popped about 6% after the IT and networking brand posted a fiscal 4Q earnings beat.
6:30am: Cautious trading
US stocks were expected to open flat on Thursday after the minutes from the US Federal Reserve's last rate-setting meeting, released yesterday, signalled that more interest rate hikes are in the pipeline in the fight against decades-high inflation.
Futures for the Dow Jones Industrial Average were trading 0.1% higher pre-market, while those for the broader S&P 500 index were up 0.1%, and contracts for the tech-laden Nasdaq-100 were also 0.1% higher.
“The biggest take was that the Fed will continue tightening its policy until it sees that inflation is ‘firmly on path back to 2%’,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.
“The dovish point was that some Fed members feared that the tightening conditions could have a larger than anticipated effect on the economy, and slow the economy more than expected, and more than needed – which probably gave an early boost to the stock markets right after the Fed minutes were released.”
That did not last long, and initial gains reversed as investors quickly realized that there was no mention of cutting rates in the foreseeable future, she noted.
“If anything, the Fed would continue lifting the rates, and keep them steady for a while. One important thing that we should keep from these minutes is that the Fed doesn’t want to rely on slowing energy prices to declare victory over inflation, as they are well aware that energy prices are very volatile, and they could rebound as fast as they fell,” added Ozkardeskaya,
In the wake of the softer-than-predicted headline inflation number last week, investors had scaled back their expectations for future rate hikes. The minutes will now force investors to reconsider those expectations. Data on prices over the coming weeks and months will be closely watched to see whether inflation has indeed peaked.
Looking ahead, data on US home sales are due at 3.00pm ET and initial weekly jobless claims are due at 1.30pm ET today. Any signs of waning consumer confidence and activity will likely feed into worries that the wider economy is indeed slowing down and add to the likelihood that the world's biggest economy may slip into recession.
Contact the author at jon.hopkins@proactiveinvestors.com