No Nasdaq bounce to be had on Thursday
U.S. stocks closed down on Thursday, as a rebound in technology shares stalled out, snapping a three-day winning streak for the Nasdaq Composite.
What did major indexes do?
- The Dow Jones Industrial Average DJIA closed down 176.70 points, or 0.5%, to 36,113.62.
- The S&P 500 SPX ended down 67.32 points, or 1.4%, at 4,659.03.
- The Nasdaq Composite COMP dropped 381.58 points, or 2.5%, to finish at 14,806.81.
On Wednesday, major indexes gained ground after the December consumer-price index showed U.S. inflation running at a 7% year-over-year clip, a nearly 40-year high.
What drove markets?
Shares of technology companies, expected to see revenue and earnings grow faster than average, fell on Thursday, reviving a trend from the start of 2022, when Treasury yields rose rapidly in response to expectations the Federal Reserve will be much more aggressive than previously anticipated in fighting surging inflation.
Growth shares, which are more sensitive to interest rates, bounced back, but the tech-heavy Nasdaq ended lower, halting a recovery in the past three sessions.
“This is a reacceleration of last week’s trade after the three day reprieve,” said Tom Hearden, senior trader at Skylands Capital, citing an almost 20% move in value versus growth in 2022 so far. “That’s a spectacular move in nine trading days.”
Peter Garnry, head of equity strategy at Saxo Bank, said the market is expecting inflation to recede in 2022, but the dilemma facing traders is the uncertainty over how much will prices cool.
“U.S. equities are now firmly in a trading range, and we believe it will require significant surprises on earnings (either way) or a breakout in the U.S. 10-year yield BX:TMUBMUSD10Y to take U.S. equities out of the trading range,” he said.
The U.S. corporate earnings reporting season starts to speed up on Friday with major banks including JPMorgan Chase JPM due to report results.
“Perhaps earnings season will bring some welcome normality to the markets after a period of fear, relief, and speculation,” said Craig Erlam, senior market analyst at Oanda, in a note.
U.S. stock indexes got a modest lift early Thursday after the December producer-price index showed inflation at the wholesale level rose 9.7% year over year, down form 9.8% in November. The monthly rise of 0.2% was the lowest in 13 months. Also, first-time jobless claims rose by 23,000 to 230,000 last week.
Federal Reserve Gov. Lael Brainard testified Thursday that “inflations is too high” as part of her nomination hearing to become the vice chair of the institution.
“Our monetary policy is focused on getting inflation back down to 2% while sustaining a recovery that includes everyone,” Brainard also said in prepared testimony delivered before the Senate Banking Committee. “This is our most important task.”
Hot inflation and a very robust labor market point to “a fair amount of tightening in 2022″ when it comes to monetary policy, said Patrick Harker, the president of the Philadelphia Fed, on Thursday.
Harker isn’t a 2022 voting member of the Fed’s rate setting committee.
But while rates remain a hot topic, Skyland Capital’s Hearden warned that they were not the only thing moving markets on Thursday.
“They can’t blame rates today either,” he said, pointing to all five FAANG AAPL FB NFLX GOOG AMZN stocks falling nearly 2% or more on Thursday.
Which companies were in focus?
- Shares of Delta Air Lines Inc. DAL closed up 2.1% after the air carrier reported fourth-quarter adjusted profit and revenue that beat expectations.
- KB Home KBH shares jumped 16.5%, after the home builder reported fourth-quarter profit above expectations and sales that matched forecasts, saying it had to meet “healthy demand” for housing amid “extremely challenging” operating conditions.
- Boeing Co. BA led Dow gainers, with shares up almost 3% after news reports said the company’s 737 Max aircraft could be cleared to resume flights in China as early as this month.
- After chief executive Adam Aron disclosed and tweeted about his sale of 312,500 more shares, AMC Entertainment AMC stock plummeted 9%, an eight-month low for the meme stock.
What did other assets do?
- The yield on the 10-year Treasury note BX:TMUBMUSD10Y fell 2 basis points to 1.708%. Yields and debt prices moved opposite each other.
- The ICE U.S. Dollar Index DXY, a measure of the currency against a basket of six major rivals, was down 0.1%, contributing to a 1.1% pullback so far this week.
- Oil futures CL00 declined by 52 cents, or 0.6%, to settle at $82.12 a barrel after ending Wednesday at a two-month high, while gold futures GC00 fell $5.90, or 0.3%, to settle at $1,821.40 an ounce.
- Bitcoin BTCUSD fell 2.4%.
- In European equities, the Stoxx Europe 600 XX:SXXP ended fractionally lower, while London’s FTSE 100 UK:UKX rose 0.2%.
- In Asia, the Shanghai Composite CN:SHCOMP fell 1.2%, while the Hang Seng Index HK:HSI rose 0.1% in Hong Kong and Japan’s Nikkei 225 JP:NIK lost 1%.