U.S. Stocks Pull Back Sharply After Yesterday’s Post-Fed Rally

Following the rally seen going into the close of Wednesday’s trading, stocks showed a substantial move back to the downside on Thursday. The major averages more than offset yesterday’s gains, with the tech-heavy Nasdaq plunging to its lowest closing level in well over a year.

The major averages climbed off their worst levels in late-day trading but still posted steep losses. The Dow dove 1,063.09 points or 3.1 percent to 32,997.97, the Nasdaq plummeted 647.16 points or 5 percent to 12,317.69 and the S&P 500 tumbled 153.30 points or 3.6 percent to 4,146.87.

The sell-off on Wall Street came as traders cashed in on the relief rally seen following the Federal Reserve’s monetary policy announcement on Wednesday.

The Federal Reserve raised interest rates by 50 basis points as widely expected, although Fed Chair Jerome Powell was less hawkish than some had feared.

During his post-meeting press conference, Powell said the Fed is not “actively considering” a 75 basis point rate hike, temporarily offsetting worries about the outlook for rates.

However, concerns about higher rates, inflation, the economic outlook and the ongoing war in Ukraine remain, contributing to the sharp pullback on Wall Street.

A sharp increase in treasury yields also weighed on the markets, the yield on the benchmark ten-year note soaring to its highest levels in well over three years.

Traders were also looking ahead to the release of the Labor Department’s closely watched monthly jobs report on Friday.

Economists currently expect employment to jump by 391,000 jobs in April after surging by 431,000 jobs in March, while the unemployment rate is expected to edge down to 3.5 percent from 3.6 percent.

With the monthly jobs report looming, the Labor Department released a report this morning showing a modest increase in first-time claims for U.S. unemployment benefits in the week ended April 30th.

The report showed initial jobless claims rose to 200,000, an increase of 19,000 from the previous week’s revised level of 181,000.

Economists had expected jobless claims to inch up to 182,000 from the 180,000 originally reported for the previous week.

A separate report from the Labor Department showed a substantial pullback in labor productivity in the first quarter of 2022.

The Labor Department said labor productivity plunged by 7.5 percent in the first quarter, reflecting the largest decline since the third quarter of 1947.

Sector News

Steel stocks turned in some of the market’s worst performances amid concerns about the outlook for global demand, dragging the NYSE Arca Steel Index down by 6 percent to a two-month closing low.

Substantial weakness was also visible among retail stocks, as reflected by the 5.5 percent nosedive by the Dow Jones U.S. Retail Index. The index plunged to its lowest closing level in well over a year.

Online home goods retailer Wayfair (W) showed a particularly steep drop after reporting a wider than expected first quarter loss.

Semiconductor stocks also saw considerable weakness on the day, resulting in a 5 percent slump by the Philadelphia Semiconductor Index.

Housing, airline, computer hardware and biotechnology stocks also showed significant moves to the downside, reflecting broad based selling pressure.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region turned in a mixed performance on Thursday, with the markets in Japan and South Korea closed for holidays. China’s Shanghai Composite Index advanced by 0.7 percent, while Hong Kong’s Hang Seng Index fell by 0.4 percent.

The major European markets also ended the day mixed after an early rally. While the U.K.’s FTSE 100 Index inched up by 0.1 percent, the French CAC 40 Index and the German DAX Index declined by 0.4 percent and 0.5 percent, respectively.

In the bond market, treasuries pulled back sharply after showing a strong move to the upside going into the close on Wednesday. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, spiked 14.9 basis points to 3.066 percent.

Looking Ahead

The monthly jobs data is likely to be in the spotlight on Friday, while traders are also likely to keep an eye on comments by several Fed officials as well as the latest earnings news.

Source: Read Full Article