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Wall Street’s major indices on Thursday were headed for a lower finish, after a hotter-than-expected producer price inflation report added to worries that the Federal Reserve might have to continue hiking rates. Investors also parsed several other economic data points from jobless claims and housing data to business outlook numbers.
Into the final hour of trading, the tech-heavy Nasdaq Composite (COMP.IND) had declined 1.22% to 11,923.08 points. The benchmark S&P 500 (SP500) shed 0.95% to 4,108.08 points, while the blue-chip Dow (DJI) was lower by 0.82% to 33,848.55 points.
All 11 S&P sectors were trading in the red, with Consumer Discretionary and Technology falling the most.
All three major averages have stumbled through volatile trading sessions the last two days, with economic data being the main trigger. A higher-than-expected jump in the consumer price index for January on Tuesday, along with a surge in retail sales for the month on Wednesday, have led to speculation over the future of interest rate hikes and just how far the Fed would be willing to hike rates to combat inflationary pressures.
“So is good news, good news or bad news? Is bad news, bad news or good news? Are rising rates and yields a sign of normality or looming trouble again? Is US inflation hitting a glitch in its disinflationary journey? Is a soft, hard or no landing more likely now after what we’ve seen so far this year? Also are the seasonals causing havoc with the data? December’s US data was particularly weak and January’s particular strong. These are the trillion dollar questions at the moment,” Deutsche Bank’s Jim Reid said.
“At face value there is indeed growing evidence about the strength of the US economy, with the latest round of data releases still showing a very robust picture at the start of the year. This has helped to cement the market narrative of the last couple of weeks, which has seen investors reassess how high the Fed will need to raise rates in order to get a grip on inflation,” Reid added.
Data on Thursday showed that January producer price index rose 0.7% M/M, the most sine June last year and higher than the expected figure of +0.4%.
The economic calendar also had data on housing in the form of January housing starts and permits. Housing starts came in at 1.309M, compared to a consensus of 1.36M, while building permits came in at 1.339M versus 1.35M projected.
Additionally, the number of Americans filing for initial jobless claims unexpectedly fell to 194K, lower than the anticipated figure of 200K.
Furthermore, the Philadelphia Fed business outlook for February came in at -24.3 versus the consensus of -7.4.
“Neither the Labor market nor inflation is necessarily behaving as the equity markets would wish – both are not cooling fast enough. The deep curve inversion, coupled with high US real short rates, will ultimately split credit conditions between the have and have-nots. This cycle is increasingly resembling the 2000-02 Tech bubble,” Jefferies said in an investor note.
Market participants will also be looking out for the latest round of Fed speakers on Thursday. Earlier, Cleveland Fed President Loretta Mester in prepared remarks at an event in Florida said that she saw a “compelling case” for a 50 basis point increase at the central bank’s monetary policy meeting two weeks ago. Mester will speak again today in the evening at an event by CME Group.
St. Louis Fed President James Bullard at a Jackson Chamber event said that while the U.S. economy was showing some signs of disinflation, there was still work to do.
Turning to the fixed income markets, yields were slightly higher. The 10-year Treasury yield (US10Y) rose 4 basis points to 3.85%, while the 2-year yield (US2Y) was up 1 basis point to 4.63%.
Among active stocks, Merck (MRK) spinoff Organon (OGN) slumped and was the top percentage loser on the S&P 500 (SP500) after its quarterly results missed estimates. Conversely, West Pharmaceutical (WST) was the top S&P percentage gainer after reporting better-than-expected results and a $1B share buyback program.
Cisco (CSCO) rose and was the only percentage gainer among the Dow 30 components. The networking giant issued strong quarterly earnings and guidance.
Streaming company Roku (ROKU) surged as investors cheered its results and outlook.