4:21pm: Benchmarks on pace to end the week lower
The Dow closed Thursday down 108 points, 0.4%, at 30,076, the Nasdaq Composite lost 153 points, 1.4%, to 11.067 and the S&P 500 declined 32 points, 0.8%, to 3,758. The Dow nearly salvaged a winning day, flashing into the green in the afternoon, but ultimately the benchmarks each declined for the third consecutive session.
The indexes are all on pace to lose ground on the week. Investors continue to react to a 75-basis-point increase in interest rates by the Federal Reserve.
“The Fed’s paved the way for much of the world to continue with aggressive rate hikes, and that’s going to lead to a global recession, and how severe it is will be determined on how long it takes inflation to come down,” said Ed Moya, a senior market analyst at Oanda, as reported by CNBC.
12.05pm: Wall Street avoiding risk
US indices were firmly in the red at noon, as tech stock losses, including a 27% decline this year for the S&P 500 tech sector, promoted an risk-off sentiment among investors.
At midday, the Dow Jones Industrial Average was down by 120 points to 30,063, the S&P 500 was down by 30 points at 3,761, while the Nasdaq Composite was down by 145 points at 11,075.
Michael Hewson, chief market analyst at CMC Markets UK, said after the big falls seen yesterday, US markets have continued their softer theme.
“The big markets story on Wednesday was without doubt the Federal Reserve’s decision to hike interest rates by 75 basis points. Although widely expected and indeed not quite as aggressive a move as some had suggested, it still caused a degree of volatility,” Hewson wrote in a note.
“The US tech-heavy NASDAQ index exemplified this, falling 200 points immediately off the back of the news before rallying almost 300 points then finishing the day at session lows. That drove one day vol on the index to 54.12% against 29.39% on the month,” Hewson wrote.
Hewson also noted that Robinhood Markets and Virtu Financial have seen gains after the US Securities and Exchange Commission said it would stop short of allowing the banning of payment for order flow, which is a main source of revenue for both.
“Apple shares are also on the back foot on reports it is scaling back its iPhone 14 production due to low demand and focussing attention on the iPhone 14 Pro where demand seems to be holding up better,” Hewson wrote.
Major movers included pharmaceutical companies Eli Lilly and Merck, up by 3.7% and 3%, respectively. Valero Energy (NYSE:VLO) was up by 3.8% and Royal Caribbean reversed yesterday’s fall, as it rose by 2.8%.
On the downside, Factset Research fell by 8.5% on news it missed on its 4Q earnings, while Lucid Group fell by 7%, Caesars Entertainment slid 6.4% and Airbnb (NASDAQ:ABNB) dropped by 6%.
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Fireweed Metals adds senior corporate and securities lawyer Jill Donaldson to its board
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Plurilock Security completes first sale of access control solution to California-based provider of legal services
9.45am: Wall Street reacts to US jobless claims
Major US indices opened mixed, as traders reacted to layoffs in the American job market.
At the start of trading, the Dow Jones Industrial Average was up 0.09% to 30,206, the S&P 500 was down by 0.03% at 3,787, while the Nasdaq Composite was down by 0.17% at 11,200.
Ian Shepherdson, chief economist with Pantheon Macroeconomics, said initial claims rose to 213,000 for the week ending September 17 from a downwardly revised 208,000, but below the consensus of 217,000.
“We expected a clear jump in claims this week, on the grounds that last week’s unexpected drop to 213K was a pre-Labor Day distortion. The mere 5,000 increase in today’s report is not definitive evidence that the trend in claims has dropped further, but we are now very keen to see next week’s report. Four straight sub-220,000 prints would be quite compelling,” Shepherdson wrote in a note.
Shepherdson noted that the US Federal Reserve is using the strength of the US labour market as the reason for raising interest rates, including its three most recent 75 basis point hikes.
“For a Fed looking for signs of a softer labour market, the recent numbers will not be comforting, though they say nothing about the pace of gross hiring; claims are just a proxy for the pace of gross firings,” he said, adding payrolls are the difference between the two.
“It’s possible that the bar for layoffs remains very low even as firms gradually scale back hiring plans, but the Fed has made it abundantly clear that it wants a materially softer labour market, and we’re not sure labour demand has slowed enough to bring that about without at least some increase in layoffs,” Shepherdson said.
6.30am: More caution anticipated
US stocks are expected to open flat to lower on Thursday after the Federal Reserve, as forecast, delivered a 75 basis point (bp) interest rate increase yesterday and signaled that further hikes are likely.
Futures for the Dow Jones Industrial Average were up 0.1% in pre-market trading, while those for the S&P 500 lost 0.1%, and contracts for the Nasdaq-100 were 0.2% lower.
“‘Ugly’ is a good word to describe the market mood this morning. The selloff will likely continue,” said Ipek Ozkardeskaya, senior analyst at Swissquote bank, noting that Wednesday’s falls are likely to deepen.
Equities initially took in stride the Fed’s widely expected decision to deliver its third successive 75 basis point interest rate hike but Fed chairman Jerome Powell’s hawkish tone in the subsequent news conference led stocks to fall.
“We have got to get inflation behind us. I wish there were a painless way to do that. There isn’t,” Powell was quoted as saying. His words were a stark reminder that more interest rate increases are looming.
Whether the Fed can guide the world’s biggest economy to a so-called soft landing remains to be seen but for now, Powell’s words highlight that rate-setters are focused on fighting inflation which remains stubbornly around 40-year highs.
Ozkardeskaya noted that rate-setters projections went well above market expectations. “Most of them favor sending the rates above 4.25% by the end of the year; that means that there must be at least another 75 bp hike on the pipeline.”
“Then, if we are lucky, we could end the year with a 50bp hike, which could be followed by a couple of 25bp hikes before the Fed stops and takes a breather,” she added.
Elsewhere, Russia’s renewed determination in its war on Ukraine, spooked markets and reduced appetites to take on risk. Russia’s president Vladimir Putin has declared partial mobilization and the country is preparing to mobilize 300,000 reservists.
“It’s a major escalation of the war, because so far, the Russians deployed around 150-200,000 soldiers. So, sending 300,000 more men is a big deal,” said Ozkardeskaya. “Putin’s announcement, which fell like a bomb on investors who were already stressed out due to the Fed decision, sent capital to safe-haven assets yesterday.”
Some of those outflows are expected to continue today as central banks around the world move to raise interest rates amid spiraling price pressures.
Contact the author at jon.hopkins@proactiveinvestors.com