Shares closed largely higher on Wednesday after investors decided to buy the decline before taking a Thanksgiving break.
The surge came from economic data forcing the market to reflect higher expectations that the Federal Reserve will reduce market and economic support.
The downside buying played a role in the Nasdaq’s late rebound. “People now know to buy the dips,” said John Ham, wealth advisor at New England Investments & Retirement Group.
Retail traders, those who use popular trading platforms like Robinhood and TD Ameritrade, have been active buyers of stocks. Retail traders have been trained to buy dips in the market during the post-pandemic period, which has yet to see any of the major indices undergo a technical correction, defined as a 10% drop.
The lower buy comes after the Nasdaq fell from Friday’s close. At its low point, it was down almost 3% from Friday. At the same time, the yield on the 10-year Treasury jumped. This increase weighs the most on expensive tech stocks, as many tech companies expect a large chunk of their profits to occur many years away – and higher bond yields make future profits less valuable.
And until tech stocks started to rise on Wednesday, the tone of the market was more sour. A large body of economic data had made traders worried that the Fed would rush to scale back its bond buying program and raise short-term interest rates.
“The rationale for today is that jobless claims have hit the lowest number in 50 years, fueling fears that this will harden the Fed’s backbone regarding accelerating the reduction and increasing the timing of rate increases next year, ”wrote Louis Navellier, founder of Navellier. & Associates.
Unemployment claims fell to 199,000, the lowest level for initial claims since Nov. 15, 1969, according to the Department of Labor, and far better than expected 260,000. This decline continues a trend of strength in the labor market.
After the jobless claims result, the rate market began to reflect higher chances that the Fed is stepping up the pace of monetary policy tightening. The 2-year Treasury yield rose to 0.64% from 0.61% before the data was released.
The 10-year Treasury yield hit 1.69% from 1.66% before the data. Its pop meant traders saw the Fed potentially shrinking the size of its bond program faster, which would push bond prices down, raising their yields. The yield was 1.64%.
Indeed, the Fed minutes confirmed that high inflation could prompt the central bank to reduce its bond purchases at a faster pace.
Various participants noted that the committee should be prepared to adjust the pace of asset purchases and raise the target range for the federal funds rate sooner than participants are currently anticipating if inflation continues to exceed levels. consistent with the objectives of the committee, ”the minutes read.
One of the main effects of the general rate hike in the stock market is that household and business borrowing becomes more difficult, which could slow economic growth.
Positively, inflation hit estimates on Wednesday, after beating expectations weeks ago. It may also have played a role in helping the stock market reverse some of its losses.
The basic personal consumption expenditure index, a key measure of inflation tracked by the Fed, rose 4.1% year-on-year in October, in line with estimates and above the previous reading of 3.7% .
“Maybe [inflation result] validates the thesis according to which he [inflation] transient, ”said Kevin Simpson, founder of Capital Wealth Planning.
Personal spending also rose 1.3% month over month in October, more than the expected rise of 1%. Inflation, for the moment, does not deter consumers from spending because households still have a stock of liquidity resulting in part from the economic recovery. “Consumers have plenty of cash and can’t wait to spend,” Simpson said.
Elsewhere, durable goods orders fell 0.5% month-over-month in October, worse than economists’ consensus forecast of a 0.3% increase. Consumers are generally expected to stop buying more services and fewer goods, which was in favor when households stocked up during the pandemic.
Here are five actions in motion:
(ticker: GPS) plunged more than 24% after the clothing retailer fell short of quarterly earnings expectations and slashed its outlook for the full year.
Another clothing retailer,
(JWN), was down 29% after its results also failed to impress, and it pointed to higher labor costs and supply chain issues.
(ADSK) fell 15%. The software group’s sales and profits have lived up to expectations, but its outlook has disappointed the market.
The stock (PSTG) gained 13% after the company reported earnings of 22 cents per share, beating estimates of 12 cents per share, on sales of $ 563 million, above expectations of $ 531 million of dollars.
The stock (PLAN) fell 15% after the company reported a loss of 9 cents per share, lower than analysts’ estimate of a loss of 14 cents, on sales of $ 144.3 million , above expectations of $ 133.8 million.
Write to Jacob Sonenshine at [email protected]