Shares tumbled in the last trading day before the Thanksgiving holiday, as unemployment benefits claims fell to their lowest level since 1969 for the first time. Markets are increasingly reflecting on expectations that the Federal Reserve will reduce support from markets and the economy.
Immediately after the open, the Dow Jones Industrial Average was down 126 points, or 0.4%. The index climbed 194 points on Tuesday. The S&P 500 and Nasdaq Composite lost 0.4% and 0.7%, respectively.
According to the Labor Department, jobless claims fell to 199,000, the lowest level of initial claims since November 15, 1969, and far better than the expected 260,000. This continues the trend of consolidation in the labor market.
Following the jobless claims result, markets began to reflect even more chances that the Fed would accelerate the pace of monetary policy tightening. The 2-year Treasury yield rose to 0.65% from 0.61% before the data was released.
The 10-year Treasury yield rose to 1.69% from 1.66% before the data. This indicates that traders see the Fed potentially sharply reducing the size of its bond program, which will drag bond prices down, raising their yields.
The effect on the stock market is that domestic and business lending becomes harder, potentially slowing economic growth. For some companies, higher returns on longer-lasting government bonds lower their valuations significantly because higher bond yields make future profits less valuable.
Inflation data didn’t do much to change the market outlook. The core personal consumption expenditure index, a key inflation measure the Fed tracks, rose 4.1% year-over-year in October, in line with estimates and higher than the previous reading of 3.7%.
Personal spending rose 1.3% month-on-month in October, more than the expected 1% increase. Inflation, for the time being, is not deterring consumers from spending as households still have cash reserves partly as a result of economic stimulus.
But overall, all economic data is viewed as “inflation,” which has strong implications for Fed policy changes.
Elsewhere, orders for durable goods fell 0.5% month-on-month in October, worse than the consensus economist forecast of 0.3% growth. It is widely expected that consumers will move away from buying more services and fewer goods in favor of having homes stocked during the pandemic.
The Nasdaq is down more than 2% from its Friday close. In that time the 10-year Treasury yield has increased, putting the most weight on expensive tech stocks as many tech companies expect a substantial portion of their profits to come years down the line.
Here are five stocks trending Wednesday,
Gap (ticker: GPS) fell more than 23% after the clothing retailer failed to meet expectations for quarterly results and lowered its full-year outlook.
Nordstrom (JWN), another clothing retailer, also had results down 29% after failing to impress, underscoring higher labor costs and supply-chain issues.
Autodesk (ADSK) was down 16%. The software group’s sales and earnings met expectations, but its outlook disappointed the market.
Pure Storage (PSTG) stock rose 11% after the company reported a profit of 22 cents per share, on sales of $563 million, beating estimates by 12 cents per share, above expectations of $531 million.
Anaplan (Plan) stock fell 21% after the company reported a loss of 9 cents per share, below analyst estimates of a loss of 14 cents, on sales of $144.3 million, above expectations of $133.8 million.
Write to Jacob Sonenshine at [email protected]