Stocks dipped on Thursday as investors digested a host of mixed corporate earnings results and reassurances from monetary policymakers that the latest spike in inflation would likely prove temporary. Global data was also in focus, with a weaker-than-expected GDP report out of China pointing to a marked growth slowdown.
The S&P 500 declined after the index eked out a record intraday high during Wednesday’s regular session. The Dow dipped, and the Nasdaq erased overnight gains to trade slightly below the flat line.
New data from China, the first economy to experience and begin to recover from the COVID-19 pandemic, underscored the extent of the growth slowdown after a peak acceleration earlier this year. The world’s second largest economy expanded at a 7.9% rate in the second quarter from a year ago, according to the National Bureau of Statistics, missing consensus estimates for an 8.0% rise and decelerating sharply from the first quarter’s 18.3% increase.
Remarks on Wednesday from Federal Reserve Chair Jerome Powell before Congress also called into question the strength of the economic rebound, with the Fed leader saying the U.S. economy was still a ways off from meeting the central bank’s threshold of “substantial further progress” in recovering.
The cyclical energy and financial sectors, which stand to benefit from a pick-up in economic activity, underperformed during Wednesday’s session and were on track to lag again, as traders turned instead toward technology and growth shares. And the big banks that have so far reported second-quarter earnings have also posted mixed results, with revenue and net interest income coming under pressure as interest rates dipped from a March year-to-date peak.
“As of late, bank stocks and the financial sector writ large has been flagging a bit after what’s been a pretty strong early part of the year for that sector. And I think there’s a couple of things going on,” Jason Ware, Albion Financial Group partner and chief investment officer, told Yahoo Finance on Wednesday. “First of all, the elements that were driving bank stocks higher and other groups as well in that cyclical and value trade has begun to wane a bit as the market is beginning to digest what is now becoming known as peak growth.”
“Second, we have interest rates that have dipped as of late,” he added. “And of course, banks are tied very closely to what’s happening with yields.”
The drop in Treasury yields, with the benchmark 10-year yield down nearly 7 basis points to dip back below 1.4%, coincided with a more tempered economic outlook, and Powell’s remarks doubling down on his belief that recent inflationary pressures will eventually subside. In congressional testimony, the Fed leader pointed to the reopening-related categories of goods and services that have seen the biggest increases in inflation, like used car and truck prices, as evidence that the jump in prices may pass later this year.
But transitory or not, the inflation data for the past month has come in much hotter-than-expected. Tuesday’s consumer price index registered the fastest annual increase since 2008 for June/ And on Wednesday, the Bureau of Labor Statistics’ June producer price index posted a 7.3% year-over-year increase, marking the fastest rise on record in data spanning back to 2010.
“Multi-year highs in inflation and how the Fed may respond is what markets are focused on, especially as they relate to asset purchases,” High Frequency Economics’ Rubeela Farooqi wrote in a note. “[Powell] said the timing and composition of tapering will be something officials will discuss at coming meetings.”
“In sum, there was no change in the message from Mr. Powell, even as inflation continues to surprise to the upside and job growth picks up,” Farooqi added.
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9:37 a.m. ET: Import prices accelerated in June amid supply bottlenecks
Import prices jumped in June as supply chain constraints and elevated demand during the recovery pushed up inflation in more areas of the economy.
Import prices were up 1.0% in June over May, adding to an upwardly revised 1.4% gain in prices during the prior month. This marked an eighth straight monthly gain, and brought the annual increase in import prices to 11.2%.
Export prices also rose for a thirteenth straight month, increasing 1.2% after May’s 2.2% jump.
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9:30 a.m. ET: Stocks open lower
Here’s where markets were trading after the opening bell Thursday morning:
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S&P 500 (^GSPC): -9.22 points (-0.21%) to 4,365.08
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Dow (^DJI): -110.42 (-0.32%) to 34,822.81
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Nasdaq (^IXIC): -34.41 (-0.24%) to 14,610.34
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Crude (CL=F): -$1.05 (-1.44%) to $72.08 a barrel
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Gold (GC=F): +$0.10 (+0.01%) to $1,825.10 per ounce
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10-year Treasury (^TNX): -3.7 bps to yield 1.319%
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8:34 a.m. ET: New jobless claims fall to pandemic-era low
Initial jobless claims fell to the lowest level since March 2020 as the number of those newly unemployed fell further during the recovery.
Weekly jobless claims came in at 360,000 for the week ended July 10. Consensus economists were looking for a slightly bigger drop to 350,000 from the previous week’s upwardly revised level of 386,000.
Continuing jobless claims totaled 3.241 million during the week ended July 3, also falling to the lowest level since the start of the pandemic. And the total number of claimants across all programs, including both regular state and pandemic-era federal unemployment programs, dipped markedly to 13.8 million during the week ended June 26. This represented a drop of nearly 400,000 from the previous week.
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7:53 a.m. ET: Morgan Stanley tops Q2 revenue, earnings estimates, but trading results come in light
Morgan Stanley (MS), the latest big bank to report second-quarter results, topped Wall Street’s expectations on the top- and bottom-lines even as some business segments saw results slip.
Net revenue of $14.76 billion was ahead of the $14.03 billion expected, according to Bloomberg data. And adjusted earnings per share were also a beat for the quarter, coming in at $1.89 versus the $1.64 anticipated.
However, beneath the headline numbers, Morgan Stanley’s fixed income trading and revenues missed estimates, dropping to $1.68 billion from last year’s $3.04 billion. Equity trading revenue increased to more than $2.8 billion for the quarter, however, with an influx of IPOs helping boost results.
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7:17 a.m. ET Thursday: Stock futures point to a mixed open as cyclical shares lag
Here’s where markets were trading ahead of the opening bell Thursday morning:
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S&P 500 futures (ES=F): 4,351.00, -16.50 points (-0.38%)
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Dow futures (YM=F): 34,625.00, -191 points (-0.55%)
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Nasdaq futures (NQ=F): 14,893.50, +1.75 points (+0.01%)
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Crude (CL=F): -$1.32 (-1.81%) to $71.81 a barrel
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Gold (GC=F): -$1.10 (-0.06%) to $1,823.90 per ounce
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10-year Treasury (^TNX): -2.4 bps to yield 1.332%
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6:01 p.m. ET Wednesday: Stock futures hug the flat line
Here’s where markets were trading Tuesday evening
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S&P 500 futures (ES=F): 4,366.5, -1.25 points (-0.03%)
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Dow futures (YM=F): 34,798.00, -18 points (-0.05%)
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Nasdaq futures (NQ=F): 14,895.25, +3.5 points (+0.2%)
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Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck
