U.S. Stocks Giving Back Ground Following Recent Strength

Stocks initially showed a lack of direction but have moved mostly lower over the course of morning trading on Thursday. The major averages have slid more firmly into negative territory after bouncing back and forth across the unchanged line early in the session.

Currently, the major averages are off their lows of the session but still in the red. The Dow is down 278.23 points or 0.9 percent at 31,596.61, the Nasdaq is down 52.08 points or 0.4 percent at 11,845.57 and the S&P 500 is down 20.87 points or 0.5 percent at 3,939.03.

The pullback on Wall Street comes as traders cash in on some of the recent strength on Wall Street, with the notable advance seen over the two previous sessions lifting the major averages to their best levels in over a month.

The Federal Reserve’s monetary policy decision next week also continues to weigh on investors’ minds amid concerns aggressive interest rate hikes could tip the economy into a recession.

Earlier this morning, the European Central Bank announced its decision to raise interest rates by a larger-than-expected 50 basis points, marking the first rate hike in over a decade.

“The Governing Council judged that it is appropriate to take a larger first step on its policy rate normalisation path than signalled at its previous meeting,” the ECB said.

Negative sentiment may also have been generated in reaction to news that President Joe Biden has tested positive for Covid-19.

A statement from White House Press Secretary Karine Jean-Pierre said Biden is fully vaccinated and twice boosted and experiencing very mild symptoms.

On the U.S. economic front, the Labor Department released a report unexpectedly showing another modest increase in first-time claims for U.S. unemployment benefits in the week ended July 16th.

The report showed initial jobless claims crept up to 251,000, an increase of 7,000 from the previous week’s unrevised level of 244,000. The uptick surprised economists, who had expected jobless claims to edge down to 240,000.

Jobless claims inched higher for the third straight week, reaching their highest level since hitting 265,000 in the week ended November 13, 2021.

A separate report released by the Federal Reserve Bank of Philadelphia showed regional manufacturing activity unexpectedly contracted at a faster rate in the month of July.

The Philly Fed said its current general activity index slumped to a negative 12.3 in July from a negative 3.3 in June, with a negative reading indicating a contraction in regional manufacturing activity. Economists had expected the index to rebound to a positive 0.4.

The Conference Board also released a report showing its index of leading economic indicators decreased for the fourth straight month in June.

The Conference Board said its leading economic index slumped by 0.8 percent in June after falling by a revised 0.6 percent in May.

Economists had expected the leading economic index to decline by 0.5 percent compared to the 0.4 percent drop originally reported for the previous month.

Energy stocks are seeing substantial weakness in morning trading, moving sharply lower along with the price of crude oil. Crude for September delivery is currently plunging $4.07 to $95.81 a barrel amid concerns about the outlook for demand.

Reflecting the weakness in the energy sector, the Philadelphia Oil Service Index is down by 5.1 percent, the NYSE Arca Oil Index is down by 4.2 percent and the NYSE Arca Natural Gas Index is down by 2.4 percent.

Significant weakness has also emerged among airline stocks, as reflected by the 3.6 percent nosedive by the NYSE Arca Airline Index.

United Airlines (UAL) and American Airlines (AAL) are posting steep losses after reporting weaker than expected second quarter earnings.

Telecom, housing and steel stocks are also seeing notable weakness, with AT&T (T) leading the telecom sector lower after lowering its full-year free cash flow guidance.

In overseas trading, stock markets across the Asia-Pacific region turned in a mixed performance during trading on Thursday. Japan’s Nikkei 225 Index rose by 0.4 percent, while China’s Shanghai Composite Index slumped by 1 percent.

Meanwhile, the major European markets have all moved to the downside over the course of the session. While the German DAX Index has slid by 0.7 percent, the U.K.’s FTSE 100 Index and the French CAC 40 Index down by 0.3 percent and 0.2 percent, respectively.

In the bond market, treasuries have moved sharply higher after seeing initial weakness. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, is down by 10 basis points at 2.936 percent.

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