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The Dow industrials were taking a solid leg lower Thursday at midday, with investors parsing weekly data on applications for unemployment benefits and other key economic updates.
A steady rise in bond yields also continues to create turbulence in equities markets and other assets as investors weigh fixed-income purchases versus other assets that don’t promise risk-free yields.
What are major indexes doing?
- The Dow Jones Industrial Average DJIA, -1.75% was down 306 points, or 1%, at around 31,654.
- The S&P 500 SPX, -2.39% declined by about 54 points, or 1.4%, to 3,873.
- The Nasdaq Composite Index COMP, -3.30% shed 286 points, or 2.1%, at 13,313.
On Wednesday, the Dow rallied nearly 425 points, or 1.4%, to close at a record 31,961.86, while the S&P 500 rose 1.1% and the Nasdaq advanced 1%.
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What’s driving the market?
A fresh advance in bond yields was generating new friction for bulls on Wall Street Thursday, a day after the Dow carved out an all-time high.
Positive developments on the vaccine front and soothing words from Federal Reserve Chairman Jerome Powell in back-to-back rounds of testimony before Congress Tuesday and Wednesday appeared to ease some jitters over rising bond yields that had rattled previously stock-market investors.
But on Thursday markets were rattled once more.
Esty Dwek, head of global market strategy at Natixis Investment Managers said that rising rates was extending a rotation out of tech and into other areas that might perform better in an improving economic environment. She told MarketWatch that that shift was helping spark turbulence in the market.
“The rotation into cyclicals is continuing/accelerating, funded by profit-taking in the more growth sectors like technology,” said Dwek.
“This explains the headline moves in indices. In fact, markets appear able to absorb higher rates rather well, as long as the Fed sticks with its forward guidance (aka nothing is changing for a long time), though the move is going exponential today and at some point markets will react more broadly,” she said.
Higher yields were seen as driving a rotation out of tech-related stocks into shares of companies more closely tied to the economic cycle, on expectations that the vaccine rollouts, rounds of fiscal aid and easy monetary policy will spark a surge in growth as the economy more fully reopens.
Indeed, the 10-year Treasury note TMUBMUSD10Y, 1.496% hit a yield at around 1.5%, compared with 1.344% at last Friday’s close at 3 p.m. Eastern.
“Financial markets seemed encouraged by Fed Chair Powell’s dovish tone [Wednesday] saying it could take more than three years to achieve their inflation goal. But there appears a disconnect from reality here,” wrote BofA Global Research strategist Hans Mikkelsen, in a note.
“There appears a real risk the Fed is not going to be able to sound dovish much longer and that transition could see wider credit spreads,” he wrote.
On Thursday, Kansas City Fed President Esther George said that inflation could quickly rise once more Americans are vaccinated and the U.S. central bank should monitor price signals closely.
Meanwhile, investors were digesting the latest weekly reading on those seeking unemployment benefits amid the COVID-19 pandemic, with initial state jobless claims dropping 111,000 to 730,000 in the week of Feb. 20. Economists had expected first-time jobless claims to come in at 845,000. The fall was larger than expected, but claims data has been erratic and unreliable lately, due to processing snafus, bad weather and other problems.
On the plus side, continuing state jobless claims declined 101,000 to 4.42 million. However, the number of people out of work from the pandemic remains very elevated.
The Food and Drug Administration on Wednesday said that Johnson & Johnson’s JNJ, -0.30% single-dose COVID-19 vaccine candidate has no unexpected safety concerns, in a step that moves the experimental vaccine one step closer to emergency authorization.
In other economic data, sales of durable goods rose 1.4% in January, with core capital goods orders advancing 0.5% last month. Separately, an updated reading of U.S. fourth-quarter gross domestic product was raised slightly to 4.1% from 4% from the first estimate.
Meanwhile, the index of pending home sales fell 2.8% in January, after four consecutive months of declines, the National Association of Realtors. The index captures real-estate transactions where a contract was signed, but the sale has not yet closed, making it an indicator of where existing-home sales will go in the months ahead.
The median forecast of economists polled by MarketWatch had called for a 0.5% decline.
Which companies are in focus?
- GameStop Corp. GME, +78.72% shares were up 50% Thursday, after trading was paused twice ahead of the closing bell on Wednesday, including for roughly the final 15 minutes of trading. The stock had spiked in January amid concerted buying efforts by participants in Reddit’s WallStreetBets forum.
- Shares of movie-theater chain AMC Entertainment Holdings Inc. AMC, +10.89%, another popular stock on WallStreetBets, was up 9.5% after a similar move Wednesday.
- Shares of NVIDIA Corp. NVDA, -7.51% fell by about 6% after the company late Wednesday reported that its quarterly revenue blew past last quarter’s record-setting sales, as high holiday demand for gaming chips met with supply shortages.
- Teladoc Health Inc. TDOC, -11.86% shares dropped over 10% after the virtual healthcare company reported fiscal fourth-quarter results late Wednesday.
- Verizon Communications Inc. VZ, -1.61% was overwhelmingly the largest bidder in a crucial 5G auction, spending $45.5 billion, or more than half the auction’s total revenues of $81.2 billion, the Federal Communications Commission disclosed Wednesday afternoon. AT&T Inc. T, -2.38% spent 23.4 billion in the C-band auction, while T-Mobile US. Inc. TMUS, +0.69% spent $9.3 billion. Shares of Verizon were 0.7%, lower those for T-Mobile 1.5% higher and AT&T shares were trading 1.7% lower.
- Shares of Best Buy Co. Inc. BBY, -10.40% were down 9.7% after earnings and revenues fell short of forecasts.
- Moderna Inc. MRNA, +2.40% shares rose 4.2% after reporting fourth-quarter results.
How are other assets faring?
- The ICE U.S. Dollar Index, DXY a measure of the currency against a basket of six major rivals, declined 0.4%.
- Oil futures jumped to a 13-month high, with the U.S. benchmark CL.1 up 0.5% to trade at $63.54 a barrel. April gold futures GCJ21, -1.43% slumped 1.2% to $1,776.10 an ounce as yields resumed their upward march.
- In overseas stock trading, the pan-European Stoxx 600 SXXP was down 0.4% and London’s FTSE 100 UKX was down 0.1%. In Asian trade, the Shanghai Composite SHCOMP closed 0.6% higher, China’s CSI 300 000300, +0.59% rose 0.6%, while Hong Kong’s Hang Seng Index HSI rose 1.2%.
