Stocks end lower as Fed continues to fight inflation

Stocks racked up more losses on Wall Street and Treasury yields hit multi-year highs again on Thursday as investors anticipated a closely watched government report on the labor market that could influence the Federal Reserve’s next step in its struggle to reduce inflation.

Tech stocks led the market pullback, which came a day after the central bank raised its benchmark rate for the sixth time this year and signaled it may have to keep raising rates for some time to come. before it can successfully crush the highest inflation in decades.

The Standard & Poor’s 500 index fell 1.1%, the Dow Jones industrial average fell 0.5% and the technology-heavy Nasdaq composite closed down 1.7%. The declines extended the major indices’ losing streak to a fourth day. They are each on pace for a weekly loss.

Higher rate expectations helped push Treasury yields higher, weighing on equities. The two-year Treasury note, which tends to track expectations of future Fed moves, rose to 4.72% from 4.61% late Wednesday and is now at its highest level since 2007, according to Tradeweb.

The 10-year Treasury yield rose to 4.15% from 4.09% on Wednesday night. The rise in the 10-year Treasury yield has more than doubled mortgage rates this year and continues to put pressure on stocks.

On Wednesday, the Fed added another giant rate hike and suggested the pace of rate hikes may slow. The central bank also signaled that interest rates may eventually have to rise even more than previously thought in order to rein in the worst inflation in decades.

The central bank’s latest three-quarters of a percentage point increase takes short-term interest rates to a range of 3.75% to 4%, its highest level in 15 years. Wall Street is also divided on whether the central bank will eventually raise rates to a range of 5% to 5.25% or 5.25% to 5.50% next year.

Higher rates not only slow the economy by discouraging borrowing, but also make equities less attractive relative to lower-risk assets such as bonds and certificates of deposit.

Stubbornly high inflation prompted central banks around the world to raise interest rates as well. On Thursday, the Bank of England announced its largest interest rate hike in three decades: three quarters of a point. The increase is the eighth in a row for the Bank of England and the largest since 1992.

European and Asian markets mostly closed lower.

In the United States, the S&P 500 fell 39.80 points to 3,719.89. The Dow lost 146.51 points to close at 32,001.25. The Nasdaq slipped 181.86 points to 10,342.94. Small company stocks also lost ground. The Russell 2000 fell 9.41 points, or 0.5%, to 1,779.73.

Technology and communication services stocks were among the largest weightings in the market. Apple fell 4.2% and Warner Bros. Discovery fell 5.6%.

These losses limited gains in the industrials, energy and other sectors. Boeing jumped 6.3% and Marathon Petroleum 3%.

Investors were hoping for economic data signaling that the Fed might ease rate hikes. The fear is that the Fed will go too far in slowing the economy and causing a recession.

Warmer than expected data from the employment sector this week has so far signaled that the Fed needs to remain aggressive. On Friday, Wall Street will receive a broader update to the US government’s October jobs report.

So far, hiring and wage growth have not declined fast enough for the Fed to slow its inflation-fighting efforts. If the October data shows a stronger-than-expected rise in hiring or wages, that could put pressure on the Fed to keep raising interest rates.

The Department of Labor is expected to report that non-farm employers added 200,000 jobs last month. It would be the worst performance since December 2020, when the economy lost 115,000 jobs.

Investors will also be watching for the latest consumer inflation data. This report, the Consumer Price Index, is due out next week.

“The next two or three quarters are extremely important in assessing how far the Federal Reserve will need to go to achieve its objective of reducing inflation,” said Bill Northey, chief investment officer at US Bank Wealth Management. “Why the CPI data is so important, why the labor report is so important, is because it feeds into this next six-month cycle.”

Wall Street has also been watching the latest corporate earnings reports closely. Reports were mixed with many companies warning that inflation was likely to continue to put pressure on operations.

Booking Holdings rose 2.7% after posting strong financial results in the third quarter. Robinhood Markets soared 8.2% after the investing app operator reported third-quarter earnings that beat Wall Street forecasts. Chipmaker Qualcomm fell 7.7% after giving investors weak earnings and revenue forecasts.

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