Stocks closed lower on Thursday, one day after the Dow Index suffered a 1,100-point rout. Investors remained jittery amid continuing fears that high inflation is chilling consumer spending and crimping corporate profits.
The Dow Jones Industrial Average shed 236 points, or 0.7%, closing at 31,253. The S&P 500 dropped 0.6% and the tech-heavy Nasdaq Composite index lost 0.3%.
The pullback shows “that the market is trying to find direction,” Lindsey Bell, chief markets and money strategist at Ally Invest told the Associated Press. “There’s just still a significant amount of uncertainty, especially in regard to what the (Federal Reserve) is going to do, how that’s going to impact growth in the future, and additionally, where the heck is inflation going from here.”
Wall Street is worried about the potential for a downturn in the face of headwinds including the stiffest inflation in 40 years and rising interest rates. Tightening monetary policy could create a bumpy landing — and even a recession — causing economic growth to slow. Grim quarterly earnings reports from retailers such as Target and Walmart this week have fueled investors’ concerns.
The skid has put the S&P 500 on the cusp of a “bear market,” which is when a stock index falls 20% or more from a recent high for a sustained period of time.
Chinese retail and factory activity fell sharply in April as COVID-19 lockdowns severely disrupted supply chains while New York’s factory output slumped in May for the third time this year amid a collapse in new orders and shipments. The Chinese data cast a long shadow over the world’s second-largest economy while the steep drop in New York manufacturing could be an early signal of the impact of the Fed’s plans to tighten monetary policy to tap down inflation.
MSCI’s gauge of stocks across the globe.MIWD00000PUS shed 0.01% and Treasury yields fell, with the benchmark 10-year note US10YT=RRdown 4.7 basis points at 2.886%, which some see as a sign the market has priced in all the Fed’s rate hikes. “The most important thing happening in the market right now is the fact that the 10-year yield has held below 3%,” said Tom Hayes, chairman and managing member of Great Hill Capital LLC.
Five Fed officials slated to speak on Tuesday also is key considering the market’s recent tumble, he said. “Usually when you’re near a low in the market and you got five Fed speakers, they’re generally not there to talk the market down,” Hayes said. With earnings growth turning positive and a more reasonable price-to-earnings ratio, stocks are more attractive, he said.
The pan-European STOXX 600 index.STOXX ended flat, up 0.04%, with declining German.GDAXI and French.FCHI indices closed lower and Britain’s FTSE 100.FTSE rising on the day.
Emerging market stocks.MSCIEF rose 0.33% and on Wall Street, the Dow Jones Industrial Average.DJI rose 0.25%, but the S&P 500.SPX lost 0.21% and the Nasdaq Composite.IXIC dropped 1.02%. China continues to be an issue, as does Europe, especially eastern Europe, and Putin’s threats toward Finnish and Swedish plans to join NATO, said Tim Ghriskey, the senior portfolio strategist at Ingalls & Snyder.
“When you see big up days, I’m not surprised to see some profit-taking on a subsequent day,” Ghriskey said, referring to Friday’s rally on Wall Street. “We’re simply seeing a reaction to recent strength. There are various factors driving the market, but in general, none of them are very positive.”
Goldman Sachs raised its 2022 earnings per share growth forecast to 8% from more than 5% but cut its year-end target for the S&P 500 to 4,300 from 4,700 on the interest rate and growth fears.
Former Goldman Chief Executive Lloyd Blankfein said on Sunday he believes the U.S. economy is at risk of possibly going into a recession as the Fed continues to raise rates to tackle rising inflation.
The dollar was down slightly after hitting a 20-year peak last week. The dollar index =USD fell 0.344%, with the euro EUR= up 0.18% to $1.0431 and the Japanese yen JPY= up strengthened 0.12% at 129.06 per dollar. The dollar is likely to strengthen because of the macroeconomic outlook, whose fundamentals don’t look good, said Bipan Rai, North America head of FX Strategy at CIBC Capital Markets.
“From a risk-off perspective, that should still support the dollar against most currencies,” Rai said. But the dollar is consolidating after recent strength and could see more range-bound trading sessions, he said.
The euro was near its lowest since 2017. European Central Bank policymaker Francois Villeroy de Galhau said the euro’s weakness could threaten the central bank’s efforts to steer inflation toward its target. Gold rose slightly as declining Treasury yields offset headwinds from a relatively firm dollar that along with the prospect of interest rate hikes had earlier pushed bullion to a more than three-and-a-half-month low. Oil rose as the European Union stepped closer to an import ban on Russian crude and traders viewed signs that the COVID-19 pandemic was receding in the hardest-hit areas of China, suggesting a significant demand recovery was in the works.
U.S. crude futures CLc1 settled up $3.71 at $114.20 a barrel, while Brent LCOc1 rose $2.69 to settle at $114.24 a barrel.Bitcoin BTC=BTSP last fell 5.01% to $29,725.84. U.S. gold futures GCv1 settled up 0.3% at $1,814 an ounce.
European government bond yields rose, with Germany’s 10-year yield down 0.9 basis points at 0.943% – below the roughly eight-year high of 1.19% it reached last Monday DE10YT=RR. The ECB will likely decide at its next meeting to end its stimulus program in July and raise interest rates “very soon” after that, ECB policymaker Pablo Hernandez de Cos said.