U.S. stocks were putting in a mixed performance Thursday as investors waded through a raft of economic data and weighed monetary policy moves by global central banks following the Federal Reserve’s decision a day earlier to more quickly wind down its asset purchases and pencil in three interest rate increases for 2022.
What’s happening
- The Dow Jones Industrial Average DJIA, +0.32% remained up 91.36 points, or 0.3%, at 36,018.79.
- The S&P 500 SPX, -0.38% was down 19.87 points, or 0.4%, at 4,689.98.
- The Nasdaq Composite Index COMP, -1.77% slumped 283.33 points, or 1.8%, to 15,282.25.
On Wednesday, stocks rose sharply across the board.
What’s driving markets
Central banks remained in the frame on Wall Street, a day after the Federal Reserve adopted a hawkish stance in its forecasts for interest-rate hikes in 2022 and 2023 while also more aggressively slowing the pace of its bond buying.
The Bank of England on Thursday made a surprising decision, becoming the first major central bank to lift interest rates since pandemic began by raising its benchmark to 0.25% from 0.10%. The U.K. government’s worries about the economic impact of the omicron variant of coronavirus, as well as central bank policy makers’ speeches ahead of time, had led traders to expect the BOE would refrain from raising rates in December.
Meanwhile, the European Central Bank, also on Thursday, said it would further slow purchases of assets under its Pandemic Emergency Purchase Program, or PEPP, in the first quarter of next year and bring them to a halt in March. But the ECB softened the blow by planning to raise purchases under a separate, existing program in the second quarter, while ECB President Christine Lagarde reiterated that a rate increase in 2022 remained unlikely.
U.S. stocks opened with gains, seeing the S&P 500 briefly trade above its record close from Dec. 10, but the tech-heavy Nasdaq and the S&P 500 soon turned down.
“Interest rates pulled back despite the Fed not only confirming the rapid tapering of QE but also laying out the likelihood of 3 rate increases in 2022 and 3 more in 2023, where they hope to see the fed-funds rate equal to inflation”, said Louis Navellier, founder of Navellier & Associates, in a note. “Then the UK actually raised rates this morning, while the ECB confirmed no intention to raise rates in 2022. It’s a mixed bag of uncertainty regarding inflation versus monetary support from central banks.”
Mike Kramer of Mott Capital Management attributed the earlier stock-market rise to the decline in volatility. “The rally in stocks was purely driven by the move lower in the VIX VIX, +6.17%, as implied volatility levels drop. We see this often these days,” he said.
Beyond central bank news, new applications for U.S. unemployment benefits climbed by 18,000 in mid-December to 206,000, but the level remains relatively low after last week when claims fell to the lowest level since 1969.
In addition, the seasonally adjusted annual rate of housing starts rose to roughly 1.68 million in November, marking its highest level since March, according to data from the Census Bureau and Department of Housing and Urban Development. Consensus estimates gathered by FactSet had anticipated a rate of 1.57 million.
The Fed said industrial production rose 0.5% in November. IHS Markit said its U.S. manufacturing “flash” purchasing managers index for December fell to 57.8 from 58.3 a month earlier, while the services PMI dropped to 57.5 from 58. A reading of more than 50 indicates an expansion in activity.
See: U.S. economy grows a touch slower in December, but still shows plenty of muscle
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Which companies were in focus?
- Lennar LEN late Wednesday reported a surge in profit that missed analyst expectations, in news that could put a recent home builder rally at risk.
- Rubicon, a cloud-based waste and recycling platform operator, is going public by merging with special-purpose acquisition corporation Founder SPAC FOUN, in a deal with an implied pro forma enterprise value of $1.7 billion.
- Delta Air Lines Inc. DAL stock was down 0.3% after it set its financial goals for the coming years ahead of its scheduled Capital Markets Day.
- Shares of Biogen Inc. BIIB were in focus after the company said it plans to submit a protocol for a Phase 4 confirmatory study for its Alzheimer’s disease drug to U.S. regulators in March.
- Genuine Parts Company GPC said Thursday its Motion Industries Inc. unit will pay about $1.3 billion for Kaman Distribution Group, a 1,700-employee power transmission, automation and fluid power industrial distributor founded in 1971.
- Emergent BioSolutions Inc. EBS said Thursday that it began dosing participants in a Phase 1 clinical trial for its universal influenza vaccine candidate.
How are other assets faring?
- The yield on the 10-year Treasury note TMUBMUSD10Y fell 3.5 basis points to 1.427%. Treasury yields and prices move in opposite directions.
- The ICE U.S. Dollar Index DXY, a measure of the currency against a half-dozen other monetary units, was down 0.5% after Europe’s central bank moves.
- In oil futures, West Texas Intermediate crude CL00, for January CLF23 delivery rose 2.2%.
- Gold futures GC00 for February delivery GCG22 rose 1.9%.
- The Stoxx Europe 600 Index SXXP ended 1.2%, while London’s FTSE 100 Index UKX rose 1.3%.
- In Asia, the Shanghai Composite Index SHCOMP closed up 0.8%, while the Hang Seng Index HSI picked up 0.2% in Hong Kong. China’s CSI 300 000300 added 0.5%. Japan’s Nikkei 225 Index NIK rallied 2.1%.
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