Stocks fall as busy Fedspeak day dampens rate easing hopes

U.S. stocks extended their downtrend on Thursday as optimism around easing inflation and a shift in Federal Reserve policy faded, while Wall Street analyzed a slew of earnings of companies.

The S&P 500 (^GSPC) fell 0.3% after hitting a session low of more than 1%, while the Dow Jones Industrial Average (^DJI) was roughly flat, erasing a loss of more than 300 dots. The technology-focused Nasdaq Composite (^IXIC) edged down 0.4%.

Comments from St. Louis Federal Reserve Chairman James Bullard kicked off a dead day on Wall Street by suggesting that the Fed’s monetary tightening campaign has so far had “limited effects” on inflation observed and that even a “dovish” policy from here should push the fed funds rate up by at least another percentage point.

Fellow Federal Reserve Bank of Minneapolis Neel Kashkari echoed that sentiment in separate remarks, indicating that he saw little evidence of a cooling in underlying demand and that the Fed was not ” not there yet” to halt the progress of rate hikes.

In the spotlight of economic data, unemployment insurance filings fell last week, holding near historic lows even as a wave of tech companies announced layoff plans. Initial jobless claims, the most current snapshot of the labor market, came in at 222,000 for the week ended Nov. 1. Feb. 12, a decrease of 4,000 from the previous week, Labor Department data showed Thursday.

A recent rebound in stock markets petered out on Wednesday after strong October retail sales data dashed hopes of a slowdown in central bank policy, recently revived by a series of reports on the inflation. A shortfall from Target also weighed on sentiment in Wednesday’s session, with the company citing inflation and a deteriorating economic backdrop ahead of the key holiday shopping season.

Other industry peers fared better over the period.

Macy’s (M) shares jumped more than 15% after the department store giant beat estimates and raised its full-year profit forecast, buoyed by strong demand in the luxury areas of its business . Kohl’s (KSS), meanwhile, beat earnings expectations but withdrew its full-year outlook due to “significant” macroeconomic headwinds and the unexpected transition of its chief executive. Shares recovered from losses earlier in the day to close up 5%.

Shares of Bath & Body Works (BBWI) soared 25% after the personal care and home fragrance maker raised its full-year earnings outlook. Retailers Walmart (WMT), Lowe’s (LOW), Home Depot (HD) all beat analyst estimates this week.

Elsewhere, as the earnings season hits its home stretch, Nvidia (NVDA) CEO Jensen Huang said strong demand for the chips will help the company weather potential economic challenges – enough insurance to offset the downsides. losses from its gaming business. Shares slid 1.5%.

Machinery maker Cisco Systems (CSCO) saw its shares rebound 5% after the company announced a positive earnings outlook and said it was downsizing and reducing office space.

U.S. Senate Minority Leader Mitch McConnell (R-KY) speaks during a press conference following his re-election as Minority Leader at the United States Capitol in Washington, United States, on 16 November 2022. REUTERS/Elizabeth Frantz

Meanwhile, in Washington, D.C., Republicans were set to win a majority in the House of Representatives on Wednesday, which would result in shared control of the US Congress – a positive sign for investors since stocks have always performed better in times of stalemate. Politics.

Still, strategists claimed that inflation and economic conditions remain at the center of market concerns. Seema Shah, senior global asset management chief strategist, said the outcome was expected to be “largely unrelated to the overall market outlook”.

“Instead, it is historically high inflation, the Fed’s response to inflation and the resulting risk of recession, coupled with key structural policy decisions, that will determine the direction of the market.”

On that front, San Francisco Federal Reserve Chair Mary Daly said in an interview with CNBC that a rate pause is currently not an option while indicating that the fed funds rate could reach the range. from 4.75% to 5.25%.

But Federal Reserve Governor Christopher Waller said Wednesday that recent economic data made him more comfortable with the possibility of a 50 basis point hike at the central bank’s December meeting.

Goldman Sachs, while forecasting a 0.50% rise next month, added an additional quarter point in May 2023 to its outlook, raising its expectation for the top federal funds rate to 5-5.25%.

Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter @alexandraandnyc

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