U.S. stocks closed lower Thursday, snapping a five-day streak that helped to drive the Dow and the S&P 500 out of correction territory. But major indexes posted robust gains for a third week in a row as the Federal Reserve reassured the market that it will remain flexible on interest rates going forward.
How did major benchmarks fare?
The Dow Jones Industrial Average DJIA, -0.02% fell 5.97 points to 23,995.95, while the S&P 500 index SPX, -0.01% slipped 0.38 point to 2,596.26. The Nasdaq Composite Index NQH9, -0.15% shed 14.59 points, or 0.2%, to 6,971.48.
For the week, the Dow rose 2.4%, the S&P 500 gained 2.5%, and the Nasdaq rallied 3.5%.
What drove the market?
Although stocks retreated, volatility receded as investors took solace in speeches by Federal Reserve officials this week as they continued to spread the message that the central bank will be cautious in its approach to raising interest rates this year.
Fed Chairman Jerome Powell reinforced that message Thursday during a discussion at the Economic Club of Washington where he said that the central bank will be “flexible” and “patient” on the monetary policy.
Latest data showed muted inflation with the consumer-price index slipping 0.1% in December to mark the first decline in nine months, the Labor Department said Friday. That matched the forecast of economists polled by MarketWatch. The increase in the cost of living over the past 12 months slowed to 1.9% from 2.2%, the first time it’s fallen below the key 2% mark since August 2017.
Investors may also have found a modicum of cheer on the U.S.-China trade front after U.S. Treasury Secretary Steven Mnuchin told reporters Thursday night that Vice Premier Liu He, the most senior economic policy adviser to President Xi Jinping, would travel to Washington later in January to continue trade negotiations, talks that have been seen by markets as gaining momentum this week.
Meanwhile, the partial U.S. government shutdown entered its 21st day, tying the record for the longest in history. While markets have so far shrugged off the drama in Washington, hundreds of thousands of federal workers won’t receive paychecks this week, and economists warn that the economic effects of the shutdown could grow significant as the standoff drags on.
What were analysts saying?
Brent Schutte, chief investment strategist at Northwestern Mutual Wealth Management, told MarketWatch that weakness in equities Friday morning should not shake confidence in what he sees as a sustainable rally going forward.
“We’ve clawed back from the December downturn, which was disconnected from economic reality,” he said. “With inflation not rising convincingly above 2%, markets are right to think that the Fed will be their friend,” he said, adding that Friday’s subdued inflation reading will give the central bank even more reason to take the patient approach Powell has outlined in recent speeches.
“Stocks are loving that central bank policy appears to be in an ultra-dovish mode,” wrote Edward Moya, chief market strategist at Oanda, in a note. “Inflation is low and under control and the main catalyst for the Fed’s ability to be patient. If we see softer prints, we could see yields drop and stocks continue their rally.”
Which stocks were in focus?
Shares of Netflix Inc. NFLX, +3.98% rose 4% after the firm was upgraded to strong buy from outperform at Raymond James.
Chico’s FAS Inc. CHS, +4.22% advanced 4.2% after the firm announced the closure of 250 stores, as part of an overhaul, with the aim of improving its online offering and customer service.
Activision Blizzard Inc. ATVI, -9.37% fell 9.4% after the firm announced that it was ceding rights to the “Destiny” franchise to Bungie Inc. Following the move, Benchmark cut its price target on the stock from $93 to $87, and KeyBanc Capital slashed its price target from $80 to $64.
Shares of General Motors Co. GM, +7.05% rose 7.1% after the auto maker said it expects 2018 earnings and adjusted free cash flow to beat expectations and provided an upbeat 2019 outlook.
Yum Brands Inc. YUM, -0.93% is down 0.9% after the KFC and Pizza Hut parent was downgraded from neutral to sell by Goldman Sachs.
Shares of Starbucks Corp. SBUX, -0.72% also fell 0.7% after Goldman Sachs downgraded the stock to neutral from buy.
How were other markets trading?
Markets in Asia rallied with Japan’s Nikkei NIK, +0.97% closing 1% higher, while Hong Kong’s Hang Seng Index HSI, +0.55% added 0.6% and China’s Shanghai Composite SHCOMP, +0.74% advanced 0.7%.
In Europe, stocks rose, with the Stoxx Europe 600 SXXP, +0.09% edging up 0.1%.
Crude oil CLG9, -1.69% ended its nine-day winning streak, gold prices GCG9, +0.04% settled mostly unchanged, while the U.S. dollar DXY, +0.12% firmed. DJIA, -0.02%