4:15pm: "June lows are in play," says Comerica (NYSE:CMA) Wealth CIO
The Dow closed Thursday up 146 points, 0.5%, at 31,656, while the Nasdaq Composite lost 31 points, 0.3%, to 11,785 and the S&P 500 added 12 points, 0.3%, to 3,967.
The benchmarks all appeared on pace for their fifth-straight day of losses but gradually climbed in afternoon trading.
The question going forward is whether markets in September will get as low as they did in June, according to John Lynch, chief investment officer at Comerica Wealth Management.
“The June lows are in play in the coming weeks as equity investors finally recognize the intensity of the Fed’s mission,” Lynch said, as reported by CNBC. “Inflation and recession are typically accompanied by lower market multiples and markets need to reassess valuation as interest rates rise.”
The Federal Reserve, both in the form of Chairman Jerome Powell and regional presidents, appears very likely to continue to raise interest rates aggressively. That continues to hold the attention of investors.
12.05pm: US indices still running red
The major US indices continued in red territory at the noon bell, despite the latest numbers from the US ISM manufacturing survey pointing to an easing of price pressures in factories.
At midday, the Dow Jones Industrial Average was down 0.6% to 31,346 the S&P 500 was down by 1% at 3,912, while the Nasdaq Composite was down by 2.8% at 11,559.
US manufacturing activity growth held up in August after slowing in the previous two months, thanks to higher new orders and employment, but it remains at the lowest rate in more than two years. This is amid lingering supply constraints and slowing global growth, data from the Institute for Supply Management (ISM) showed.
Ian Shepherdson, chief economist at Pantheon Macroeconomics, said the ISM manufacturing index was unchanged at 52.8, above the consensus of 51.9.
“This is a pleasant surprise, showing yet again that the regional Fed and PMI surveys are not always a reliable guide to the national picture. The details are good too: new orders rose 3.3 points to 51.3, a three-month high, and employment jumped 4.3 points to 54.2, a five-month high,” Shepherdson said in a statement.
He noted that production dipped, lagging prior declines in orders.
“We expect a modest rebound in the headline index over the next few months, given the uptick in China’s Caixin PMI, which tends to lead the ISM by about three months. The ISM has weakened less than the Caixin appeared to imply, because the latter was hit hard by China’s lockdowns in the spring, so the ISM will see a smaller rebound too,” he said.
Shepherdson said the manufacturing index is much more likely to rise than decline further into the early fall.
“We aren’t bothered by the reported uptick in the order backlog; the index is not seasonally adjusted and it almost always rises in August; the 1.7-point increase is smaller thank usual, and the supply-measures in the survey continue to point to intense downward pressure on margins and, hence, their contribution to core inflation,” Shepherdson said.
At midday, the major movers included IT services company DXC Technology, up 4%, while health companies Merck and Johnson and Johnson were up 2% and 1.8% respectively.
On the downside, identity management software company Okta fell by 32%, on news of its difficulty in merging with Auth0, acquired by Okta in 2021. Also, graphics chip maker Nividia was down by 11.3%, and Advanced Microsystems shed 6.7%, both warning of sales hits by new US licensing constraints on Chinese chip sales.
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9.35am: Wall Street losses continue
US stocks opened lower as investors eye the release of the August jobs report on Friday amid continued inflation fears.
Just after the open, the Dow Jones Industrial Average had slipped 118 points or 0.4% at 31,393 points, the S&P 500 was down 21 points or 0.5% at 3,934 points, and the Nasdaq Composite had shed 115 points or 1% at 11,701 points.
NVIDIA Corporation (NASDAQ:NVDA) fell about 5% as new US rules limit the sale of artificial intelligence chips to China, representing a potential loss of about $400 million in sales, the company said.
Bed Bath & Beyond Inc stock continued to fall, down another 3%, after the company announced store closures, layoffs, and a share sale earlier this week.
As investors await the release of August’s non-farm payroll report on Friday, initial jobless claims for the week ended August 27 decreased by 5,000 to 232,000, far below the consensus analyst expectation of 248,000.
Pantheon Macroeconomics chief economist Ian Shepherdson said “so much for the ‘layoffs are taking off’ story.”
He noted that this was the third straight decline, pushing the four-week average to 241,500, the lowest in seven weeks.
“The narrative that claims are rising strongly took root in July and continues to defy the evidence,” he said.
“Claims remain extremely low by historical standards, which makes perfect sense given that job openings remain near record levels. If you’re still determined to find a US recession, you’re going to have to look somewhere else.”
6:30am: Non-farm payrolls report due Friday
US stocks were expected to open lower on Thursday, as investors ponder how far the Federal Reserve will go in its fight against inflation ahead of the August jobs report expected on Friday.
Futures for the Dow Jones Industrial Average were trading 0.6% lower pre-market, while those for the broader S&P 500 index were down 0.7%, and futures for the tech-laden Nasdaq-100 lost 1.1%.
On Wednesday, the ADP private sector jobs report for August showed payrolls grew by just 132,000, lower than the 268,000 jobs added in July and below the 300,000 increase that analysts were expecting for the month.
Swissquote Bank senior analyst Ipek Ozkardeskaya said investors were not pleased with Wednesday’s softer-than-expected private jobs data, and showed their displeasure by sending all three major indices lower on the last trading day of August.
“Good news is bad news, as good economic data supports the idea that the US economy could withstand an aggressive monetary policy tightening … but bad news is also bad news, as the Federal Reserve is so determined to bring inflation down, it is ready to accept a certain slowdown in the economy, and the jobs market,” she added.
Growth in the US jobs market has remained strong despite the series of rate hikes by the Fed this year, but if Friday’s more closely-watched non-farm payroll data show a similar slowdown in the US jobs market, Ozkardeskaya said that would be more in line with the actual tightening macroeconomic conditions.
“This is something that the Fed ultimately wants to achieve because a cooler jobs market should also lead to cooler inflation,” she added.
Analysts are expecting the Bureau of Labor Statistics to report an increase of 318,000 jobs for August on Friday, after employers added 528,000 jobs in July. Ahead of that, the latest weekly US initial jobless claims numbers will draw some attention today.
Meanwhile, the Federal Open Market Committee will meet later this month, when it is expected to raise interest rates by 75 basis points, matching the moves it made in June and July, to bring down a US inflation rate running at 40-year highs.
In energy markets, growing fears of a global recession and prospects of lower demand sent the WTI crude oil futures 2.3% lower at $87.53 a barrel, and the Brent crude futures 2.4% weaker at $93.34.
Contact the author at jon.hopkins@proactiveinvestors.com