The Dow and the S&P 500 closed higher on Thursday following upbeat data on the labor market which may have momentarily offset investor jitters over climbing inflation and rising bond yields. But stocks ended the session well off their intraday highs as financial and health-care shares slid into negative territory in the afternoon.
How did the main benchmarks fare?
The Dow Jones Industrial Average DJIA, +0.66% rose 164.70 points, or 0.7%, to 24,962.48 after being up more than 300 points earlier. The S&P 500 SPX, +0.10% added 2.63 points, or 0.1%, to 2,703.96. The Nasdaq Composite Index COMP, -0.11% was the lone loser, falling 8.14 points, or 0.1%, to 7,210.09. That represented its longest losing skid, four straight sessions, since a nine-session slide ended Nov. 4, 2016, according to WSJ Market Data Group.
What drove the markets?
Even though investors are betting on an improving economy, they are demonstrating a heightened sensitivity to the prospect of accelerated inflation, rising interest rates, and higher bond yields ever since a recent reading on wages showed its fastest growth in years. The 10-year yield stayed relatively elevated at around 2.92%.
On Wednesday, major indexes tumbled in the afternoon, surrendering gains that had the Dow up by 303 points at its peak. The losses followed the release of the minutes from the January Federal Open Market Committee meeting. The minutes showed that policy makers felt the U.S. economy is stronger than at the end of 2017 which some market observers took as a sign of more interest-rate hikes, reinforcing prospects for a rate increase in March.
The news drove up the yield on the 10-year Treasury note’s yield TMUBMUSD10Y, +0.35% to a fresh four-year high above 2.95%, and pushed the dollar higher.
Which data and Fed speakers were in focus?
St. Louis Fed President James Bullard tried to tamp down the growing expectations of economists that the U.S. central bank will engineer four quarter-point rate increases this year. “The idea that we have to go 100 basis points in 2018, that seems like a lot to me,” Bullard said in an interview on CNBC.
Earlier on Thursday, the Fed’s vice chairman for supervision, Randall Quarles, said in Tokyo that recent low inflation readings aren’t “a great concern,” and the economy is “performing very well.”
Initial U.S. jobless claims fell by 7,000 to 222,000 in the seven days ended Feb. 17, marking the second lowest level since the end of the 2007-2009 recession. Economists surveyed by MarketWatch had forecast claims to total 230,000.
What were strategists saying?
“We’re seeing a repricing of risk, given the anticipation of inflation and higher rates, but some of that is a byproduct of an improving economy, one that’s growing faster than normal. In general, the broader economic conditions continue to improve,” said Steven Baffico, chief executive officer at Four Wood Capital Partners.
Frank Cappelleri, a technical strategist at Instinet LLC, said financial stocks thrive during periods of higher rates but recently the sector hasn’t reacted positively even as bond yields have jumped against the backdrop of sharp declines in the broader market.
“The biggest drag on the market today is the financials,” he said. “This shows how closely banks are tied to interest rates. It also shows how significant the financials are to the market in general.”
Which stocks were in focus?
Shares in Roku Inc. ROKU, -17.71% plunged 18% in heavy trading after the streaming-media company issued a disappointing outlook late Wednesday, along with better-than-expected quarterly earnings.
Pandora Media Inc.’s stock P, -7.19% shed 7.2% after the music service late Wednesday posted stronger-than-expected quarterly revenue, although the adjusted net loss was wider than consensus estimates.
Car-rental giant Avis Budget Group Inc. CAR, +13.45% gained 13.5% after its better-than-anticipated results.
Cheesecake Factory Inc. CAKE, +3.70% finished 3.7% higher even as its results late Wednesday revealed weaker-than-expected quarterly revenue.
Wayfair Inc. shares W, -22.72% sank 23% after the online home retailer reported a wider-than-expected fourth-quarter loss.
Chesapeake Energy Corp.’s stock CHK, +21.67% surged 22% after the company topped earnings estimates for the fourth quarter. The stock was one of the biggest boosts to the energy sector, which rose more than 2% as one of the best-performing industries of the day on a percentage basis.
How did other assets perform?
European stocks SXXP, -0.20% mostly dropped, while Asian equities largely closed lower, though the Shanghai Composite Index SHCOMP, +0.07% jumped more than 2% in the first day of trading after the weeklong Lunar New Year holidays.
Gold prices GCG8, +0.11% settled little changed, while the dollar, as gauged by the ICE U.S. Dollar Index DXY, +0.20% slid 0.3%.
