The Dow Jones Industrial Average attempted to snap a three-day losing streak as U.S. stocks traded mostly lower in final hour of trading on Thursday as investors absorbed comments by Federal Reserve Chairman Jerome Powell a day earlier, while also positioning for the October employment report due Friday.
How stocks are trading
The S&P 500
fell19 points, or 0.5%, to 3,741.
was up 13 points, or less than 0.1%, at 32,161, after erasing a loss of 420 points.
The Nasdaq Composite
shed 121 points, or 1.1%, to trade at 10,404.
On Wednesday stocks were volatile with the S&P 500 and Nasdaq logging their largest one-day drop since Oct. 7. As of early Thursday, the Nasdaq had traded at its lowest level since Oct. 14, while the S&P 500 briefly touched its lowest level since Oct. 21 and the Dow reached its lowest level since Oct. 26 before paring losses.
What’s driving markets
The Fed on Wednesday delivered a widely expected 75 basis point hike in its benchmark interest rate target to a range of 3.75% to 4%. However, investors fixated on comments made during Powell’s news conference which suggested that the Fed is nowhere near pausing its campaign of raising interest rates.
“It is very premature to be thinking about pausing. When people hear lags, they think about pauses. It’s very premature, in my view, to talk about pausing our rate hikes. We have a way to go,” Powell said.
He also suggested that the Fed’s benchmark rate may need to top the level of core inflation to stamp out inflation, a hint that the Fed funds rate may need to be pushed above 5% and left there for a while to succeed in dragging inflation back down to its 2% target.
See: Opinion: How Powell pivoted away from the Fed’s dovish message and tanked the markets
“I think Powell is using sort of a bully pulpit. He’s using his message to try to contain the market,” said Mace McCain, chief investment officer at Frost Investment Advisors. “We’ve had a very strong equity market, and I think he doesn’t want to see the markets up because it’s going to fight against him. He wants to use his message to contain that or soften it, so he’s tried to put the brakes on optimism.”
And even if they opt for smaller rate rises in December and January, Powell is telegraphing to investors that the terminal rate might ultimately need to rise even higher than many investors had previously anticipated, said Gene Goldman, chief investment officer of Cetera Financial Group.
Expectations for a higher terminal rate were reflected in Fed funds futures, which track expectations surrounding where the Fed’s key benchmark rate might be in the future. According to the CME’s FedWatch tool, traders were pricing in a 33% chance that the benchmark could climb to between 5.25% and 5.5%, compared with a 16.6% chance on Wednesday.
See also: Live Markets
Another rise in the 2-year Treasury yield was also adding to pressure on stocks, Goldman added, since the 2-year rate is a proxy for expectations surrounding where the Fed funds rate might be a year or more into the future.
The 2-year yield
rose to 4.724%, its highest level since 2007, as the difference between the 2-year and 10-year yields further inverted to more than -60 basis points at one point. Higher yields also helped push the dollar higher, with the ICE U.S. Dollar Index
climbing 1.4% o 112.9.
As equity investors brook losses, Goldman said he’s prepared to hear from a bevy of senior Federal Reserve officials who he expects will try to clarify Powell’s remarks in an attempt to calm markets.
See: How Fed’s Powell caught markets ‘off guard,’ extending stock selloff as Treasury yields soar
Julian Emanuel, senior strategist at Evercore ISI, said in a note that Powell’s “hawkish message underpins volatility into and beyond the [Nov. 8 U.S. midterm election]. A retest of the October lows, particularly [by the] growth centric Nasdaq 100, becomes base case.”
Meanwhile, the tech-heavy Nasdaq was underperforming due to both the sharp rise in the 2-year yield, and the disappointing earnings from semiconductor stalwart Qualcomm QCOM. The company’s shares were down more than 6.3% in afternoon trade Thursday.
Investors are awaiting Friday’s October jobs report, but in the meantime a weekly reading on the number of Americans applying for jobless claims fell slightly to 217,000, clinging near pandemic lows.
See: New jobs created in October likely to dip to two-year low, but not enough to tame inflation
In U.S. economic data Thursday, the ISM services sector activity index for October dropped to 54.4% in October from 56.7%, while September factory orders rose 0.3%, matching consensus. Looking ahead, investors will receive earnings reports from Starbucks
and Warner Bros Discovery
after the close.
In Europe, the Bank of England raised interest rates to 3% on Thursday from 2.25%, its biggest rate rise in three decades. The pound
was weaker on the day at $1.1170 from $1.1392 — though much of that move came before the actual BOE decision — while the 2-year gilt
rose 5.5 basis points to 3.04%.
Companies in focus
Shares of Under Armour Inc.
jumped 12.8% after the athletic clothing maker topped analyst estimates for adjusted earnings and revenue. Looking ahead, the athletic clothing maker trimmed its fiscal 2023 revenue to increase at a low single-digit percentage rate, down from its earlier guidance of up 5% to 7%.
Zillow Group Inc.
shares advanced 11.2% after the online housing company reported earnings that beat consensus expectations, but the company foresees lower revenue in the fourth quarter amid a volatile housing market and rising mortgage rates.
Moderna Inc. shares
were down 0.6% after falling sharply ahead of the bell Thursday as the COVID vaccine maker posted far weaker-than-expected third-quarter earnings and said short-term supply constraints would impact 2022 advance purchase agreements.
Peloton Interactive Inc. shares
rose 3.3% after falling nearly 20% in premarket trade as the maker of connected fitness equipment saw its losses narrow but forecast significantly lower revenue for the holiday quarter than analysts had anticipated.
Restaurant Brands International Inc.’s
stock rose 2%, boosted by the company’s better-than-expected third-quarter results.
— Jamie Chisholm contributed to this article.