Stocks fall as Fedspeak’s busy day dampens interest rate easing hopes

US stocks continued their downtrend on Thursday as optimism around declining inflation and a policy change from the Federal Reserve faded as Wall Street analyzed a mixed bag of corporate earnings.

The S&P 500 (^GSPC) fell 0.3% from a low of more than 1%, while the Dow Jones Industrial Average (^DJI) remained more or less flat, losing more than 300 points. The tech-focused Nasdaq Composite (^IXIC) fell 0.4%.

Remarks from St. Louis Federal Reserve President James Bullard kicked off a bad day on Wall Street when he suggested that the Fed’s monetary tightening campaign has so far had “limited effects” on perceived inflation and that even a “loose” policy from here should spike Federal Funds rates by at least another percentage point.

His colleague, Federal Reserve Bank of Minneapolis Neel Kashkari, echoed that sentiment in separate remarks, indicating that he saw little sign of an underlying cooling in demand and that the Fed “isn’t there yet” to slow rate hike progression. stop.

In the spotlight of economic data, claims for unemployment insurance fell last week and remained near historic lows, even as a wave of tech companies report layoff plans. Initial jobless claims, the most up-to-date snapshot of the labor market, stood at 222,000 for the week ending Nov. 12, down 4,000 from the previous week, Labor Department data showed Thursday.

A recent recovery in stock markets lost momentum on Wednesday after strong retail data in October dashed hopes of a central bank policy slowdown, recently fueled again by a series of lighter inflation reports. A missed profit from Target also weighed on sentiment during Wednesday’s session, with the company citing inflation and a deteriorating economic backdrop ahead of its main Christmas shopping season.

Other peers outperformed during the period.

Macy’s (M) shares rose more than 15% after the department store giant beat estimates and raised its full-year earnings outlook, supported by strong demand in the luxury areas of its business. Kohl’s (KSS), meanwhile, beat earnings expectations but retracted its full-year guidance due to “significant” macroeconomic headwinds and the unexpected transition of its CEO. Stocks recovered from losses earlier in the day to close 5% higher.

Shares of Bath & Body Works (BBWI) rose 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 earnings season reaches its final stretch, Nvidia (NVDA) Chief Executive Officer Jensen Huang said strong demand for chips will see the company through potential economic challenges — an insurance policy enough to offset losses in its gaming business. Shares fell 1.5%.

Machine maker Cisco Systems (CSCO) saw shares rise 5% after the company posted a positive revenue outlook and said it was downsizing its workforce and shrinking office space.

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

Meanwhile, in Washington, D.C., Republicans were expected to secure a majority in the House of Representatives on Wednesday, resulting in divided control of the US Congress — a positive sign for investors, as stocks have historically outperformed in times of political deadlock.

Still, strategists have argued that inflation and economic conditions remain key concerns for markets. Principal Asset Management Chief Global Strategist Seema Shah said the outcome “should be largely irrelevant to the broad market outlook”.

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

On that note, Mary Daly, president of the San Francisco Federal Reserve Bank, said in an interview with CNBC that an interest rate pause is not an option right now, while indicating that the Federal Funds rate is in the range of 4.75%-5.25%. can reach.

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

Goldman Sachs, which forecasts a 0.50% hike next month, added another quarter-point increase to its outlook in May 2023, raising its expectations 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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