Wall Street benchmarks advanced on Thursday, with investors reacting to jobless claims falling to a new COVID-19 era low, but wary of rising inflation may force the Federal Reserve to normalize monetary policy sooner rather than later.
Good news on the labor market came from government data that showed workers filing for new unemployment benefits fell further below 500,000 in the latest week. Jobless claims set their lowest levels in more than a year as the labor market continued to heal from the worst days of the COVID-19 outbreak.
“We strongly suggest that firm managers, investors and policymakers should anticipate more robust monthly job gains for the remainder of the year and a steady march downward on the overall unemployment rate to 4.1% by the holiday season,” wrote Joe Brusuelas, chief economist at RSM, in a research note.
Thursday’s trading reversed a losing streak that lasted three days, with cyclical energy and tech stocks dragging on Wall Street. However, caution over the outlook limited the upside, with investors nervous that soaring price pressures could prod the Fed into action against inflation.
On Wednesday, minutes from the Federal Open Market Committee’s (FOMC) April meeting showed that “a number of participants suggested” that if the economy continues to improve rapidly, “it might be appropriate at some point in upcoming meetings to begin discussing a plan for adjusting the pace of asset purchases,” which have currently been taking place at the aggressive rate of $120 billion per month over the past year.
That was enough to spook stock investors and put upward pressure on bond yields, with investors confronting the likelihood that the post-pandemic economic recovery might stir up lasting inflation — and prompt a roll-back of the Fed’s crisis-era monetary policies.
“I don’t think investors should be surprised at all,” about the recent volatility in markets, Stephanie Roth, capital markets economist at JPMorgan Private Bank, told Yahoo Finance.
“We’ve had a really strong recovery, both from an economic perspective and a market perspective, and now we’re sitting here and we’re at the peak of economic momentum, and now it’s just about a transition into mid-cycle. So that tends to bring about volatility and transitions under the surface,” she added.
Companies from Procter & Gamble (PG) to Kellogg (K), to Target (TGT) and Home Depot (HD) have cited rising price pressures this year, with consumer and business demand far outstripping supply as more businesses reopen and social distancing restrictions ease.
“We were expecting strong growth this year, but now the focus should be on the risks – the risks certainly around inflation, that has come up quite a bit, what the Fed is going to do, and then [whether there will] be any concerns around the COVID outbreak,” Roth warned.
“For now, everything is priced to perfection and that makes sense, but we should just be watching and mindful of the risks that could come up and that is what the market is starting to focus on,” she added.
The central bank’s massive bond purchases, along with its more than year-long stretch of maintaining interest rates near zero, have helped support both economic activity and asset prices amid the pandemic.
Still, however, FOMC members “generally noted that the economy remained far from the Committee’s maximum-employment and price-stability goals,” the minutes added.
4:03 p.m. ET: Stocks snap 3 day losing streak after jobless claims hit new low: techs lead the rally
Here were the main moves in markets as of 4:03 p.m. ET:
- S&P 500 (^GSPC): +43.47 (+1.06%) to 4,159.15
- Dow (^DJI): +186.86 (+0.55%) to 34,082.90
- Nasdaq (^IXIC): +236.00 (+1.77%) to 13,535.74
- Crude (CL=F): -$1.41 (-2.23%) to $61.95 a barrel
- Gold (GC=F): -$4.40 (-0.23%) to $1,877.10 per ounce
- 10-year Treasury (^TNX): -4.9 bps to yield 1.6340%
Via Reuters, Federal Reserve Chair Jerome Powell flagged the risks of cryptocurrencies in an unusual video message on Thursday that also laid out a clearer timetable for the Fed to consider adopting a digital currency of its own. Powell said that cryptocurrencies, stablecoins and other innovations “may also carry potential risks to those users and to the broader financial system.”
1:00 p.m. ET: Uncle Sam goes after tax dodgers, crypto investors
President Joe Biden’s new tax enforcement plan would add nearly 87,000 employees to the Internal Revenue Service, make banks report more information to the agency and require stricter cryptocurrency compliance, according to a new Treasury Department report released on Thursday.
12:10 p.m. ET: Oatly jumps as official trading begins
Oatly (OTLY) went public Wednesday on the Nasdaq as demand for dairy-free alternatives continues to skyrocket. The stock popped to over $22 per share, after pricing at the high end of estimates at $17 per share on Wednesday evening. The company is currently valued at $13 billion.
11:40 a.m. ET: Rally picks up speed
At least for the moment, investors are more hopeful for a labor market rebound (as exemplified by the latest jobless claims drop) than they are about soaring inflation, and what that might do to the Fed’s monetary policy. Stocks are now at the highs of the session, with Dow adding nearly 300 points and Nasdaq rallying by over 225.
TCW Group managing director & senior portfolio manager Diane Jaffee told Yahoo Finance Live that the claims data illustrate “that we’re on a continuing accelerating trend for the economy recovering, but it’s not gonna be a straight line.”
10:30 a.m. ET: Robinhood will let users in on IPO action
Online brokerage Robinhood on Thursday said it is starting to roll out a platform that will allow users of its trading app to buy into initial public offerings alongside Wall Street funds, a step in its quest to “democratize” finance.
Access to IPOs will allow users to buy shares of companies at their offering price, with no account minimums required.
9:30 a.m. ET: Stocks flat at the open
Here were the main moves in markets at the opening bell:
- S&P 500 (^GSPC): 4,124.93, +9.25 (+0.22%)
- Dow (^DJI): 33,920.98, +24.94 (+0.07%)
- Nasdaq (^IXIC): 13,371.94, +72.21 (+0.54%)
- Crude (CL=F): $63.13 per barrel, -0.23 (-0.36%)
- Gold (GC=F): $1,872.80 per ounce, -$8.70 (-0.46%)
- 10-year Treasury (^TNX): 1.661%, -0.022 basis points
8:30 a.m. ET: Jobless claims hit lowest since March 2020
Workers filing for new unemployment benefits fell to a new pandemic-era low in the latest week, hitting their lowest levels in more than a year as the labor market continued to heal from the worst days of the COVID-19 outbreak. The news helps stocks curb their losses, with futures mixed to slightly weaker.
“Initial claims clearly have been trending down in recent months, and the continuing claims data also have mostly moved down lately. We think these changes likely reflect improving conditions in the labor market,” said JPMorgan Chase economist Daniel Silver, in a note to clients on Thursday.
8:10 a.m. ET: The market and Fed expectations
In the wake of Wednesday’s Fed Minutes scare, Marc Chandler at Bannockburn Global Forex thinks the market is a bit too sensitive to suggestions of a rate hike, and needs to relax:
First, the open to discussion is not the same thing as a discussion. Second, that openness was predicated on continued rapid progress, and that was before the disappointing employment, retail sales, and housing starts reports. Third, it confirmed ideas, as we have suggested before, that the Jackson Hole confab in late August and the September FOMC meeting is a reasonable and recognized timeframe to expect such discussion. Separately, the minutes also gave the Fed the opportunity to reiterate what we argue is an important shift in its reaction function: actual performance is needed to meet the test of significant further progress to its goals, not forecasts.
7:50 a.m. ET Thursday: Oatly set for market debut
Oatly could be a bright spot in an otherwise rough week for investors. The vegan food brand priced at the top of its price range late Wednesday, raising over $1.4 billion and values the company at $10 billion. Along with plant-based brands like Beyond Meat (BYND), Impossible Foods, Oatly is part of the COVID-19 snacking boom that drove consumers to gorge on comfort foods — while still seeking out healthier options.
7:40 a.m. ET Thursday: Stock futures pinned in the red
Here’s where markets were trading in pre-market action:
- S&P 500 futures (ES=F): 4,103.75, -7.75 (-0.19%)
- Dow futures (YM=F): 33,719.00, -112.00 (-0.33%)
- Nasdaq futures (NQ=F): 13,231.25, -2.25 (-0.02%)
6:12 p.m. ET Wednesday: Stock futures open lower
Here were the main moves in markets Wednesday evening:
- S&P 500 futures (ES=F): 4,109.5, down 2 points or 0.05%
- Dow futures (YM=F): 33,805.00, down 26 points or 0.08%
- Nasdaq futures (NQ=F): 13,223.75, down 9.75 points or 0.07%