U.S. stocks extended their downtrend on Thursday as optimism around easing inflation and a shift in Federal Reserve policy faded, while Wall Street weighed a mixed company profits.
The S&P 500 (^GSPC) was down 0.3% after hitting a session low of more than 1%, while the Dow Jones Industrial Average (^ DJI) was about flat, eliminating a loss of more than 300 points. The technology-focused Nasdaq Composite (^IXIC) fell slightly by 0.4%.
St. Louis Federal Reserve Chairman James Bullard’s comments kicked off a tough day on Wall Street as he suggested the Fed’s monetary tightening campaign has so far had “limited effects” on observed inflation and that even “dovish” policy from here should push the fed funds rate up by at least another percentage point.
Fellow Federal Reserve Bank of Minneapolis Neel Kashkari echoed that sentiment in separate remarks, indicating that he saw little evidence of a cooling in underlying demand and that the Fed was not ” not there yet” to halt the progress of rate hikes.
In the spotlight of economic data, unemployment insurance filings fell last week, holding near historic lows even as a flurry of tech companies reports redundancy plans. Initial jobless claims, the most timely snapshot of the labor market, were 222,000 for the week ended Nov. 12, down 4,000 from the previous week, according to Department of Labor data. Work Thursday.
A recent rebound in stock markets petered out on Wednesday after good October retail data offset hopes of a slowdown in central bank policy, recently revived by a series of lighter inflation reports. A missed gains relative to target also weighed on sentiment in Wednesday’s session, with the company citing inflation and a deteriorating economic backdrop ahead of the key holiday shopping season.
Other industry peers fared better over the period.
Macy’s (M) shares jumped more than 15% after the department store giant beat estimates and raised its full-year earnings forecast, driven by strong demand in the luxury areas of its business. Kohls (KSS), meanwhile, beat earnings expectations but withdrew its full-year outlook due to “significant” macroeconomic headwinds and the unexpected transition of its chief executive. Shares recovered from losses earlier in the day to close up 5%.
Bath & Body Works Shares (BBWI) soared 25% after home fragrance and personal care producer lifted its full-year earnings outlook. Walmart retailers (WMT), Lowe’s (DOWN), the home repository (HD), all beat analyst estimates this week.
Elsewhere, as the earnings season reaches its home stretch, Nvidia (NVDA) CEO Jensen Huang said strong demand for the chips will help the company weather potential economic challenges – an assurance that has been sufficient to compensate for the losses in its gaming business. Shares slid 1.5%.
Manufacturer of Cisco Systems machines (CSCO) saw its shares rebound 5% after the company generated positive revenue outlook and said it was downsizing and reducing office space.
Meanwhile, in Washington, DC, Republicans had to obtain a majority in the House of Representatives on Wednesday, which resulted in a split in control of the US Congress – a positive sign for investors since stocks have historically performed better during times of political stalemate.
Still, strategists claimed that inflation and economic conditions remain at the center of market concerns. Seema Shah, head of global strategy for asset management, said the outcome was expected to be “largely unrelated to the overall market outlook”.
“Instead, it is historically high inflation, the Fed’s response to inflation and the resulting risk of recession, coupled with key structural policy decisions, that will determine the direction of the market.”
On that front, San Francisco Federal Reserve Chair Mary Daly said in an interview with CNBC that a rate break is not currently an option while indicating that the federal funds rate can reach the range of 4.75% to 5.25%.
But the Federal Reserve Governor Christopher Waller said Wednesday that recent economic data makes him more comfortable with the possibility of a 50 basis point hike at the central bank’s December meeting.
Goldman Sachs, while forecasting a 0.50% rise next month, added an additional quarter point in May 2023 to its outlook, raising its expectation for the top federal funds rate to 5-5.25%.
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Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter @alexandraandnyc
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