Nasdaq, S&P, Dow sink as ongoing Fed worries spark renewed selling on Wall Street

Stocks Continue To Fall On Trade Worries

Eduardo Munoz Alvarez/Getty Images News

Despite a partial rebound in the final stages of trading, the major U.S. equity averages finished notably lower on Thursday. A risk rally that lifted stocks the previous day ran into a stumbling block as another below-forecast increase in weekly jobless claims raised concerns about further Fed hawkishness as the labor market stays strong.

The Nasdaq Composite (COMP.IND) ended -2.8%, the S&P 500 (SP500) closed -2.1% and the Dow (DJI) finished -1.5%.

The Nasdaq led the decline, falling 314.13 points to close at 10,737.51. The S&P 500 slipped 78.57 points to finish at 3,640.47, while the Dow dropped 458.13 points to end at 29,225.61. The S&P reached a level of 3,610.40 before bouncing back later in the day.

All 11 S&P sectors finished in the red. Utilities led the retreat, dropping more than 4%. Consumer Discretionary was another notable loser, falling by 3%. Energy was the best performer, although it still posted a fractional loss.

“A cacophony of cataclysms has converged to bring the markets to their knees. Incessant inflation, rising rates, cursed currencies, and the Fed’s failings have caused the S&P 500 to return to the June Low of 3600,” Clark Capital’s David Alton Clark said.

“Unfortunately, we may have further downside ahead as earnings need to be reset lower, evidenced today by Carmax’s report and Apple’s downgrade,” he added. “I’d say we still have 10-15% downside in the cards. Based on S&P 500 earnings resetting lower to $200 and the historic 100 average S&P 500 multiple of 16, that gets us to 3200.”

Reviewing the action in fixed income, rates pushed higher, as the U.S. 10-year Treasury yield (US10Y) climbed 5 basis points to 3.76%. The U.S. 2-year yield (US2Y) rose 8 basis points to 4.17%.

Elsewhere, Citi reiterated its bullish thesis on the U.S. dollar into the end of the year. The firm said its forecast was “predicated on liquid asset weakness, policy divergence and US energy sovereignty.”

“We don’t envisage a Plaza 2.0,” Citi added, referring to the Plaza Accord of the 1980s that was meant to weaken the U.S. dollar. “USD positioning looks clean on a number of metrics, so we think its strength can continue unless the narrative shifts.”

On the economic front, U.S. GDP estimates stayed unchanged at -0.6% for Q2, while PCE estimates increased to +7.3% versus the prior estimate of 7.1%.

Moreover, corporate profits climbed 6.2% in Q2 to $131.6B.

Turning to the labor market, initial jobless claims hit an 8-month low, as claims dropped by 16K to 193K compared to the forecasted 218K figure that was projected.

Amid market concern that continued strength in the jobs market will leave the door open for an aggressive Fed, Pantheon Macro commented, “After 10 straight weekly undershoots to the consensus, it’s fair to say that jobless claims have not followed the steeply rising track expected by many forecasters in the spring. We weren’t on board with that story, but this week’s number is remarkable.”

The firm added: “With labor still very hard to find, firms probably are holding on to people who under normal conditions would have been laid off. At this point, then, the softening of the labor market which the Fed wants appears unlikely to come via rising layoffs.”

AllianceBernstein stated in its fourth quarter global macro outlook: “Financial markets, higher interest rates, lower equity prices and wider credit spreads are, unfortunately, part of the solution to the inflation problem. Much of the work has already been done, but we think it is nonetheless premature to sound the all-clear.”

Among active stocks, shares of the Apple dropped after the iPhone maker received a downgrade from BofA on worries about weaker consumer demand.

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