U.S. dollar index at 20-year high
U.S. stocks finished mostly higher on Thursday as bond yields rose and another pandemic lockdown in the southwestern Chinese metropolis of Chengdu added to concerns about economic growth. The Dow Jones Industrial Average and the S&P 500 index snapped a four-day losing streak, while the Nasdaq Composite recorded its longest losing streak since February.
How stocks are trading
- S&P 500 SPX, +0.30% gained 11.85 points, or 0.3%, to finish at 3,966.85.
- Dow Jones Industrial Average DJIA, +0.46% was 145.99 points higher, or 0.5%, to settle at 31,656.42.
- Nasdaq Composite COMP, -0.26% fell 31.08 points, or 0.3%, ending at 11,785.13.
On Wednesday, the Dow Jones Industrial Average fell 308 points, or 0.96%, to 31791, the S&P 500 declined 44 points, or 1.1%, to 3986, and the Nasdaq Composite dropped 135 points, or 1.12%, to 11883. The S&P 500 has fallen for seven of the past nine trading days.
What’s driving markets
U.S. stocks recovered from an earlier decline on the first day of September — historically the weakest month for equity returns — with the Dow Jones Industrial Average and the S&P 500 snapping the four-day losing streak, following news of another COVID-19 lockdown in Chengdu, China, which has placed the southwestern city’s 21 million residents into at least four days of citywide lockdown.
Meanwhile, semiconductor stocks like Nvidia NVDA, -7.67% and Advanced Micro Devices AMD, -2.99% slumped 7.7% and 3%, respectively, after the U.S. government restricted sales of certain products to China.
China’s latest COVID restrictions “brought back an old nemesis for the market,” said Marvin Loh, a senior global markets strategist at State Street. “We haven’t forgotten that China hasn’t fully reopened,” Loh said.
But the lockdown wasn’t the only piece of downbeat economic news out of China Thursday. The Caixin China purchasing managers index declined to 49.5 in August from 50.4 in July, falling below the 50-point mark that separates contraction from expansion, according to data released by Caixin Media Co. and S&P Global on Thursday.
Meanwhile, back in the U.S., investors digested Thursday’s report on weekly jobless benefit claims, which showed that the number of Americans applying for unemployment benefits fell to its lowest level in nine weeks.
The bond market also helped pressure stocks as the two-year Treasury yield hit a fresh 15-year high TMUBMUSD02Y, 3.512% at 3.520%, while the 10-year Treasury yield TMUBMUSD10Y, 3.252% climbed to 3.264%, its highest level since late June.
Rising bond yields helped push the U.S. dollar to fresh multi-decade highs, with the ICE U.S. Dollar Index DXY, -0.17% up 0.9%, at 109.68.
“I think the Treasury market holds the key for the financial markets in general, and I do think that the upward move in yields will add further pressure to stocks, especially on growth stocks that have unsustainable valuations at the moment,” said Tavi Costa, a portfolio manager at Crescat Capital.
Cryptocurrencies BTCUSD, 0.11% declined 1.1% on Thursday, with bitcoin tumbling back below $20,000 per coin.
The news of the lockdowns in China also weighed on oil prices, sending West Texas Intermediate crude futures CL00, 1.67% CL.1, 1.66% CLV22, 1.66% for delivery in October retreated $16.9, or 1%, to settle at 1,709.30.
In other economic news, S&P Global US Manufacturing Purchasing Managers’ Index posted 51.5 in August, broadly in line with the earlier released ‘flash’ estimate of 51.3, but down from 52.2 in July. The headline reading was the lowest since July 2020. The ISM manufacturing sector activity index held steady at 52.8% in August, with employment and new orders rising and inflation waning. The gauge had fallen to a 25-month low in July.
Looking ahead, investors are set to receive non-farm payrolls data for August on Friday, which could have an impact on stocks since more evidence of a robust labor market could inspire investors to brace for an even more aggressive pace of rate hikes from the Fed.
The Labor Department’s monthly jobs report on Friday, which tracks employment across the public and private sectors, is expected to show the economy added 318,000 jobs in August, far fewer than the 528,000 jobs that were created in July, according to a survey of economists by The Wall Street Journal. The unemployment rate is seen steady at 3.5%, while the average hourly earnings are estimated to rise 0.4%, following a 0.5% rise in the previous month.
Tom Essaye, founder of the Sevens Report newsletter, said that Friday’s employment report may carry risks for stock market.
“The labor market needs to show signs that it’s on the path to returning to a state of relative balance, where job openings are roughly the same as the number of people looking for jobs—and if it does not show that, then concerns about a more hawkish-for-longer Fed will rise, and that’s not good for stocks,” said Essaye in a note on Thursday.
Stocks in focus
- Campbell Soup Co. CPB, -2.00% and Hormel Foods Corporation HRL, -6.56% finished 2% and 6.6% lower, making them the biggest losers on the S&P 500 besides Nvidia, after both companies stoked worries about the impact of inflation on profits during their quarterly earnings reports.
- Meta Platforms Inc. has turned 1.5% higher after rising earlier in the session on news that the company was looking to launch paid products tied to its various platforms.
- Okta Inc. OKTA, -33.70% finished 33.7% lower after executives highlighted integration issues during the company’s earnings update.