U.S. stock markets closed lower on Thursday for the second successive day as technology-led rout continued on higher Treasury yields. A series of mixed economic data also dampened market participants’ sentiment. All three major stock indexes ended in red.
How Did The Benchmarks Perform?
The Dow Jones Industrial Average (DJI) fell 0.5% or 170.64 points to close at 36,236.47. Notably, 19 components of the 30-stock index ended in red while 11 in green. The tech-heavy Nasdaq Composite finished at 15,080.86, slipping 0.1% due to weak performance by large-cap technology stocks.
Meanwhile, the S&P 500 dropped 0.1% to end at 4,696.05. Five out of eleven sectors of the benchmark index closed in positive territory while six in negative territory.
The Energy Select Sector SPDR (XLE) and the Financials Select Sector SPDR (XLF) gained 2.2% and 1.5%, respectively. On the other hand, the Health Care Select Sector SPDR (XLV), the Materials Select Sector SPDR (XLB) and the Utilities Select Sector SPDR (XLU) dropped 1.2%, 1.3% and 1%, respectively.
The fear-gauge CBOE Volatility Index (VIX) was down 0.6%% to 19.61. A total of 11.1 billion shares were traded on Thursday, higher than the last 20-session average of 10.4 billion. Advancers outnumbered decliners on the NYSE by a 1.07-to-1 ratio. On Nasdaq, a 1.13-to-1 ratio favored declining issues.
Tech-Led Rout Continues
The minutes of the Fed’s latest FOMC meeting revealed that Fed officials have aggressively discussed the need to raise the benchmark interest rate and to reduce the size of the central bank’s balance sheet earlier-than-expected. Fed officials would like to see a significant downsizing of the Fed’s $8.8 trillion balance sheet immediately after the tapering of the monthly bond-buy program.
As a result, the yield on the benchmark 10-Year U.S. Treasury Note climbed to 1.75% on Thursday. The yield was at about 1.51% at the end of 2021. Notably, the yield on the 10-Year U.S. Treasury Note is linked to lending rates for mortgages and many other business and consumer loans.
Higher market risk-free returns mean a higher discount rate for future cash flows from stock investing. This will affect the growth-oriented stocks — especially the technology stocks — as these stocks generally provides higher returns over a long term.
Moreover, these companies depend on easy access to cheap credit to expand their businesses. In fact, the Fed Chairman also indicated that the first hike of the lending rate from the current level of 0-0.25% may come earlier-than-expected. Higher interest rate will be detrimental to technology stocks.
Consequently, shares of technology bigwigs like Apple Inc. AAPL, Microsoft Corp. MSFT and Netflix Inc. NFLX slid 1.7%, 0.8% and 2.5%, respectively. Apple currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Department of Labor reported that the weekly jobless claims came in at 207,000 for the week ended Jan 1. The consensus estimate was 196,000. Previous week’s data was revised upward to 200,000 from 198,000 reported earlier. The 4-week moving average was 204,500, an increase of 4,750 from the previous week’s revised average. The previous week’s average was revised up by 500 from 199,250 to 199,750.
Continuing claims (for those who already received benefits and reported from a week in arrears of Initial Claims data) also increasing, rising 36,000 to 1.754 million. The previous week’s level was revised up 2,000 from 1.716 million to 1,718 million.
The Department of Commerce reported that the U.S. trade deficit in November jumped to $80.2 billion, surpassing the consensus estimate of $76.1 billion. October’s data was revised marginally to 67.2 billion from 67.1 billion reported earlier.
Orders for the U.S. factory made goods (both durable and non-durable) increased 1.6% in November, beating the consensus estimate of 1.5%. October’s data was revised upward from 1% to 1.2%.
The ISM Services index in December fell to 62 from 69.1 in November. The consensus estimate was 66.8.Notably, any reading above 50 means expansion of services activities and a reading above 60 indicates exceptional performance.
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