Market Snapshot: U.S. stocks eke out gains as investors digest mixed signals on Fed’s pace of interest rate hikes

What drove markets?

Following a sizzling bull run that carried the S&P 500 index up more than 17% from its mid-June lows, U.S. stocks looked to be taking a breather as investors scrutinized the latest update on the Federal Reserve’s plans for tightening monetary policy.

Fed minutes from the July meeting, when the Fed hiked its interest-rate target by 75 basis points for the second month in a row, reinforced the notion that the world’s largest central bank isn’t about to stop hiking interest rates any time soon.

See: Did the stock market ‘misinterpret’ Fed again? What strategists say about the reaction to the July minutes

According to one analyst, resurgent fretting over central bank monetary policy tightening is being used as an excuse for profit-taking.

“After a very strong run for risk assets thanks to a narrative that we might have seen ‘peak inflation,’ Wednesday put a stop to that as multiple headlines came through that poured cold water on the prospect that central banks were about to let up on hiking rates,” said Henry Allen, macro strategist at Deutsche Bank.

See: Federal Reserve officials back moving interest rates higher in order to slow the economy, minutes show

On Thursday, Federal Reserve Bank of St. Louis President James Bullard said he is considering supporting another large rate rise at the central bank’s Sept. 20-21 policy meeting.

“I would lean toward the 75 basis points at this point,” Bullard said in a Wall Street Journal interview. “Again, I think we’ve got relatively good reads on the economy, and we’ve got very high inflation, so I think it would make sense to continue to get the policy rate higher and into restrictive territory.”

However, Kansas City Fed President Esther George struck a more cautious tone as she remains concerned about the inflation outlook. She said how fast rate hikes will happen is something policy makers “will continue to debate,” though the direction is pretty clear. Both Bullard and George are voters this year on the Federal Open Market Committee. 

See: The Fed is not getting cold feet about wrestling inflation to the ground, so stop misreading its minutes

Meanwhile, San Francisco Fed President Mary Daly also said the Fed is trying to achieve a balancing act, not raising its benchmark interest rates by such a small amount so that high inflation rates will persist, but also not pushing policy rates up too high and slowing the economy unnecessarily.

“US stocks traded mixed as investors grappled with relatively strong US economic data that might keep the door open for aggressive Fed tightening for the rest of the year,” Edward Moya, senior market analyst at OANDA said. “The economy still looks good as the housing market continues to cool.” 

U.S. existing-home sales fell 5.9% to a seasonally adjusted annual rate of 4.81 million in July.

In other U.S. economic data, investors digested initial jobless claims, which showed that the number of Americans applying for unemployment benefits decreased by 2,000 last week from a revised 252,000 during the first week of August. 

See: Jobless claims fall to 250,000 and show little sign of surging layoffs

The Philadelphia Fed Index of local manufacturing activity came in at 6.2, well above the FactSet consensus of minus five. Later in the morning, data on U.S. existing-home sales showed they declined for a sixth month in a row.

Economists still asserted that markets have reason to be concerned about an economic slowdown in the U.S. and abroad.

Nathan Sheets, global chief economist at Citi, said that even though financial markets had become more positive of late, “we remain concerned about the underlying fundamentals of the global economy. Our sense is that economic performance is likely to be plagued by high inflation, slowing real GDP growth, and rapidly tightening monetary policy for some time to come.”

Related: Expect rolling recessions as Citi cuts economic forecasts

Single-stock movers

• Following a massive run-up, shares of Bed Bath & Beyond Inc. BBBY, -19.63% fell 19.6% after GameStop Corp. Chairman Ryan Cohen disclosed he’s planning to sell his big stake in the company just months after he bought it.
• Shares of Kohl’s Corp. KSS, -7.72% tumbled 7.7% after the department store chain reported fiscal second-quarter profit that missed expectations.
• Cisco Systems Inc. CSCO, +5.81%  rose 5.8% after the company forecast stronger-than-expected revenue growth in the months ahead when it reported its second-quarter earnings Wednesday night.
• Shares of Wolfspeed Inc. WOLF, +31.86% surged 31.9% after topping revenue estimates in the recent quarter. Shares of other semiconductor companies also rose with Broadcom Inc. AVGO, +3.69%, Nvidia Corp. NVDA, +2.39%, Micron Technology MU, +2.21%, and Applied Materials AMAT, +2.14% each jumping more than 2%.

Other markets

• The 10-year Treasury yield  TMUBMUSD10Y, 2.888% declined 1.5 basis points to 2.879%, while the yield on the 2-year Treasury  TMUBMUSD02Y, 3.200%  slipped 6 basis points to 3.233% from 3.293% on Wednesday.
• West Texas Intermediate crude for September delivery CL00, +0.29%   CLU22, +0.29% gained $2.39, or 2.7%, to settle at $90.50 a barrel on the New York Mercantile Exchange. 
• The ICE U.S. Dollar Index DXY, +0.13%, a gauge of the dollar’s strength against a basket of rivals, was up 0.9%.
• Gold prices for December delivery  GC00, -0.15% GCZ22, -0.15%  fell $5.50, or 0.3%, to settle at $1,771.20 per ounce on Comex.
• Japan’s Nikkei 225 NIY00, -0.36% shed 1% during Asian market hours on Thursday, while Hong Kong’s Hang Seng 11, -3.11% index fell 0.8% and China’s Shanghai Composite SHCOMP, -0.46% fell 0.5%.
• The Europe Stoxx 600 FXXP00, +0.09% finished 0.4% higher, as did UK stock-market benchmark FTSE 100 Z00, +0.24%.

 — Jamie Chisholm contributed to this article.