4.10pm: Dow, S&P500 and Nasdaq all lower in subdued session
The Dow, S&P and Nasdaq all ended slightly lower in a subdued session as hawkish comments from a US Federal Reserve official and conflicting data as to the strength of the US economy saw investors pause for breath.
At the close the DJIA was down 6 points, to 33,547, the S&P 500 fell 12 points, or 0.3%, to 3,947 and the Nasdaq Composite dipped 39 points, or 0.35%, to 11,145.
Weekly jobless claims numbers continued to point to a tight jobs market but a gauge of manufacturing activity fell unexpectedly to its lowest level - outside of the pandemic - since 2011 as firms reported continued softness in new orders and a weak outlook.
The Federal Reserve Bank of Philadelphia's monthly manufacturing index fell to negative 19.4 in November from negative 8.7 in October, worse than expected.
Hope that the recent good news on inflation would stop the Fed hiking rates aggressively were dealt a blow by St. Louis Fed President James Bullard.
He said the central bank needs to keep raising rates given that its tightening so far "had only limited effects on observed inflation."
“The policy rate is not yet in a zone that may be considered sufficiently restrictive” he said.
Stocks on the move included Cisco where shares rose over 4% after the company raised its full-year revenue and profit forecast with supply chain hurdles easing.
Shares in Macy’s surged over 14% after the department store chain raised its annual profit forecast on resilient demand for high-end clothes and beauty products.
12:05pm: Dow, Nasdaq down on hawkish Fed sentiment
The major US indices continued to fall midday, as Federal Reserve presidents signaled they’re not planning to stop interest rate hikes.
At midday, the S&P 500 was down by 0.5% at 3,936, the Nasdaq Composite was down by 0.4% at 11,136, and the Dow Jones was down by 0.07% to 33,530 points.
Mark Haefele, chief investment officer with UBS Global Wealth Management, said stocks vulnerable to a recession and higher rates led the losses. Materials stocks declined, as did consumer discretionary stocks.
“Additional monetary tightening and the cumulative impact of this year’s rate hikes suggest recession risks remain elevated,” Haefele wrote in a report.
“We continue to believe that the macroeconomic preconditions for a sustainable rally – that interest rate cuts and a trough in growth and corporate earnings are on the horizon – are not yet in place,” he wrote.
Both the president of the St. Louis branch of the Federal Reserve, James Bullard, and Kansas City Fed president Esther George have made hawkish statements recently indicating further hikes in interest rates to fight inflation.
The major movers included Bath and Body Works, up over 19% after the company reported better-than-expected financial results and increased its full-year earnings outlook yesterday. Chinese online retailer JD.com was up by 6.3% and Pinduoduo rose by 5.3%.
On the downside, S&P-listed Norwegian Cruise Lines slumped by 8.3% after Credit Suisse switched from a ‘Buy’ to ‘Sell’ rating, lowering their price target from US$20 to $14. Uruguay-based e-commerce business MercadoLibre slid by 4.8%, and swimming pool supplier Pool fell by 6%.
10:10pm: Current monetary policy is not yet "sufficiently restrictive," says St. Louis Fed president
The Dow fell 266 points, 0.8%, to 33,288 Thursday morning, while the Nasdaq Composite lost 158 points, 1.4%, to 11,026 and the S&P 500 dropped 49 points, 1.2%, to 3,910.
Investors are worried that despite recently released promising CPI and PPI data for October, the Federal Reserve may not be done raising interest rates quite yet.
The president of the St. Louis branch of the Federal Reserve seems to think so, at least.
"The policy rate is not yet in a zone that may be considered sufficiently restrictive," St. Louis Fed president James Bullard said in a speech Thursday morning.
“The change in the monetary policy stance appears to have had only limited effects on observed inflation, but market pricing suggests disinflation is expected in 2023,” he added.
Kansas City Fed President Esther George expressed a similar sentiment to the Wall Street Journal on Wednesday.
“I’m looking at a labor market that is so tight, I don’t know how you continue to bring this level of inflation down without having some real slowing, and maybe we even have contraction in the economy to get there,” George said.
6.30am: Mixed picture
US stocks are expected to open lower on Thursday with the feel-good factor from news of easing inflationary pressures dented by worrying earnings from the likes of retailer Target and a pick-up in retail sales.
The mixed picture of the wider economy emerging from the latest data and earnings appears to suggest that there will be further US interest rate increases in the current cycle even if a recession is likely.
Futures for the Dow Jones Industrial Average were down 0.5% in pre-market trading, while those for the S&P 500 were also 0.5% lower, and contracts for the Nasdaq-100 shed 0.4%.
“Better-than-expected US retail sales didn’t please investors yesterday, as it fuelled, again, inflation expectations,” noted Ipek Ozkardeskaya, senior analyst at Swissquote Bank.
The higher inflation expectations fuelled the hawkish Federal Reserve expectations and in turn recession worries, she added.
Advanced retail sales for the month of October increased by 1.3%, topping expectations of a 1.2% increase. Excluding autos, the figure was also 1.3%, ahead of expectations of 0.6%.
“Sour earnings from Target, which highlighted that nice-to-have stuff like clothes and electronics didn’t sell well in the latest quarter, because of rising prices, didn’t help lift investor mood,” said Ozkardeskaya.
Meanwhile, highlighting the recession theme, JP Morgan economists have said they expect the US to enter a mild recession next year because of rising interest rates and the tightening monetary conditions.
On the agenda today, are a string of speaking engagements by US rate-setters, including Atlanta Fed president Raphael Bostik and St Louis Fed President James Bullard. On the earnings front, retailers Macy’s and Kohl’s are due to report today
Elsewhere, the prospect of slower global economy, along with the de-escalation of geopolitical tensions on news that the rockets that hit Poland this week probably landed by accident, pulled oil prices lower.
Contact the author at jon.hopkins@proactiveinvestors.com