Stocks pulled back from record highs on Thursday as traders awaited a key Federal Reserve event.
The S&P 500 declined, pacing toward its first day of losses following five straight days of gains. The index had reached a new record level during Wednesday’s regular trading day. The Nasdaq and Dow each also turned lower on Thursday.
Escalating concerns about the crisis in Afghanistan added to the risk-off mood. The Pentagon confirmed on Thursday that an explosion took place at the Kabul airport, leaving an unconfirmed number injured or dead as the U.S. evacuation of the region continued.
Investors have also been awaiting the start of the Federal Reserve’s Jackson Hole symposium, which is being held as a virtual event due to the virus. Fed Chair Jerome Powell is set to give a closely watched speech on the economic outlook on Friday, which will divulge more of his and the central bank’s thinking about the timing and scope of tapering the Fed’s pandemic-era asset purchase program.
Some Fed officials have struck a more hawkish tone in recent remarks, however, adding to jitters that a shift away from accommodative monetary policy may come in the near-term. Esther George, the president of the Federal Reserve Bank of Kansas City, told Yahoo Finance in a recent interview that she was in favor of beginning the tapering process “sooner rather than later.”
But according to a number of pundits, Powell will likely keep his messaging in line with his other recent public remarks, signaling the economy has progressed toward the central bank’s goals while still remaining a ways off from fully reaching the thresholds necessary to begin tapering.
“We don’t think the Fed is going to do anything suddenly, and we really don’t think Chairman Powell is going to indicate that they’re ready to move policy anytime soon,” Wells Fargo Senior Macro Strategist Zach Griffiths told Yahoo Finance. “If you look at the July FOMC statement, they did indicate that they have seen progress toward their goals, but if you listen to [Powell’s] press conference, he really walked that back and said they are still a ways off from the ‘substantial further progress’ threshold. So we expect Chairman Powell to remain resolutely dovish.”
“When we look out to 2022, we do think the taper is in full effect and is probably completed by the end of that year,” Griffiths added. “That could weigh on stocks a bit in 2022.”
Others noted that the Fed’s months-long hinting around tapering has helped prime markets for the eventual pivot away from highly accommodative policies, removing the element of surprise that may otherwise have triggered a rush of volatility in risk assets.
“Powell has really gone out of his way to over-communicate about the taper plans. He’s been talking about it for a year. They’ve been signposting,” John Bellows, Western Asset portfolio manager, told Yahoo Finance on Wednesday. “[Former Fed Chair Ben] Bernanke in May of 2013, I think, surprised a lot of people. They weren’t looking for a taper signal, and then all of a sudden Bernanke is talking about tapering. And I think it was that surprise that caused the volatility in 2013. And Powell’s desire to avoid that is why he’s been so deliberate in terms of communicating their plans.”
10:19 a.m. ET: ‘The earnings trajectory gets tricky from here’: BofA
Second-quarter earnings season was exceptionally strong, with S&P 500 companies in aggregate growing earnings per share by about 90% over last year. These earnings per share results topped consensus estimates by about 17%, according to Bank of America data.
But after a massive quarter for corporate profits, further growth will be harder to come by, according to the firm.
“The S&P 500 posted another blowout earnings quarter, but we believe the earnings trajectory gets tricky from here,” BofA strategists Ohsung Kwon and Savita Subramanian wrote in a note on Thursday.
“Macro data has begun to moderate and inflation has flipped from a tailwind to headwind amid lingering labor and supply chain issues,” they added. “Corporate sentiment has peaked and companies’ optimism plummeted to near post-COVID lows. Consensus also points to a slowdown, with EPS expected to grow 17% in 3Q and 22% in 4Q on a 2-yr growth basis (vs. +27% in 2Q).”
BofA expects full-year 2021 earnings per share to rise 46% to $204, with this outlook increased from the $185 seen previously. The firm also expects 2022 earnings per share to grow further to $215 — up from their earlier estimate of $205 — though this would reflect an only 5% year-over-year growth rate from the 11% pace they saw previously.
9:30 a.m. ET: Stocks open mixed amid Fed’s Jackson Hole symposium
Here’s where markets were trading Thursday just after the opening bell:
S&P 500 (^GSPC): -2.28 (-0.05%) to 4,493.91
Dow (^DJI): +39.05 (+0.11%) to 35,444.55
Nasdaq (^IXIC): -7.09 (-0.05%) to 15,036.63
Crude (CL=F): -$0.91 (-1.33%) to $67.45 a barrel
Gold (GC=F): -$2.70 (-0.15%) to $1,788.30 per ounce
10-year Treasury (^TNX): +0.9 bps to yield 1.353%
8:40 a.m. ET: Domestic GDP was revised up to a 6.6% annualized rate in Q2
U.S. economic activity rose at a 6.6% annualized rate in the June quarter this year, the Bureau of Economic Analysis said in its second revision on gross domestic product. This was a tick faster than the 6.5% growth rate reported previously. GDP had risen at a 6.3% annualized rate in the first quarter of 2021.
Non-residential fixed investments and exports were each revised higher in the second estimate, helping boost the headline index. On the other hand, however, private inventory investment, residential fixed investment and state and local government spending served as drags.
8:34 a.m. ET: New weekly jobless claims increased last week, but held near pandemic-era low
New unemployment claims totaled 353,000 during the week ended August 21 to come in just slightly above the prior week’s pandemic-era low, new Labor Department data showed Thursday morning. During the previous week, new claims were at 349,000. Consensus economists were looking for 350,000 new claims in the latest report, according to Bloomberg data.
Meanwhile, the total number of Americans claiming unemployment benefits across all programs was still elevated, and increased versus the prior week. As of the week ended August 7, about 12 million Americans were claiming benefits across both state and federal programs, marking an increase of 182,000 versus the previous period.
7:41 a.m. ET: ‘I think it is time to begin to ease back’ on accommodation: Fed’s George
Esther George, the president of the Federal Reserve Bank of Kansas City, suggested she was in favor of removing the central bank’s highly accommodative policies and beginning the tapering process “sooner rather than later.”
“As I judge the guidance that the committee has offered around ‘substantial further progress’ toward its goals, that, in my judgment, we are reaching that point,” George told Yahoo Finance’s Brian Cheung in an interview on the sidelines ahead of the virtual Jackson Hole symposium. “We’ve certainly seen strong job gains which tells us the labor market is moving forward. Certainly the levels of inflation right now, with our view that we’ve met the criteria for our inflation objective.”
“So I think it is time to begin to ease back from the amount of accommodation that’s going into the economy given the outlook that we have,” she added. “So I would be in favor of beginning that process sooner rather than later. And of course we’ll be having that conversation with my colleagues at our September meeting.”
George is an alternate voting member of the Federal Open Market Committee this year, and will be a voting member next year.
7:26 a.m. ET Thursday: Stock futures trade mixed ahead of Jackson Hole
Here’s where markets were trading Thursday morning:
S&P 500 futures (ES=F): -3.5 points (-0.08%) at 4,489.50
Dow futures (YM=F): +10.00 points (+0.03%) to 35,370.00
Nasdaq futures (NQ=F): -24.25 points (-0.16%) to 15,340.00
Crude (CL=F): -$0.63 (-0.92%) to $67.73 a barrel
Gold (GC=F): +$0.50 (+0.03%) to $1,791.50 per ounce
10-year Treasury (^TNX): -0.2 bps to yield 1.342%
6:07 p.m. ET Wednesday Stock futures drift near records
Here’s where markets were trading Wednesday evening:
S&P 500 futures (ES=F): -0.5 points (-0.01%) at 4,492.50
Dow futures (YM=F): +22.00 points (+0.06%) to 35,382.00
Nasdaq futures (NQ=F): -2.25 points (-0.01%) to 15,362.00
Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck
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