U.S. Stocks Pull Back Sharply Following Yesterday's Rebound

(RTTNews) - After moving sharply higher over the course of the previous session, stocks showed a substantial move back to the downside during trading on Thursday. The major averages largely offset Wednesday's gains, with the S&P 500 once again falling to its lowest closing level since late 2020.

The major averages climbed well off their worst levels going into the close but continued to post steep losses. The Dow slumped 458.13 points or 1.5 percent to 29,225.61, the Nasdaq plunged 314.13 points or 2.8 percent to 10,737.51 and the S&P 500 tumbled 78.57 points or 2.1 percent to 3,640.47.

The sharp pullback on Wall Street came as traders cashed in on yesterday's gains, as the buying interest generated by the Bank of England's bond market intervention quickly evaporated.

The moves by the BoE contributed to a pullback by bond yields and the U.S. dollar, inspiring traders to pick up stocks at reduced levels following recently weakness.

However, bond yields moved back to the upside, with the yield on the benchmark ten-year note partly offsetting yesterday's 25.9 basis point plunge.

A report from the Labor Department showing first-time claims for U.S. unemployment benefits unexpectedly fell to a five-month low last week also weighed on the markets.

While the report points to continued strength in the labor market, traders may view the data as giving the Federal Reserve confidence that it can continue to aggressively raise interest rates.

The report showed initial jobless claims slipped to 193,000 in the week ended September 24th, a decrease of 16,000 from the previous week's revised level of 209,000.

The dip surprised economists, who had expected jobless claims to inch up to 215,000 from the 213,000 originally reported for the previous week.

With the unexpected decline, jobless claims dropped to their lowest level since hitting 181,000 in the week ended April 23rd.

"While overall economic activity is expected to slow in response to sharply higher interest rates and a weakening global backdrop, the low level of claims is a reminder that labor market conditions remain extremely tight even as we head toward a mild recession next year," said Nancy Vanden Houten, Lead U.S. Economist at Oxford Economics.

"The imbalance between the supply and demand for workers, which is putting upward pressure on wages, is a key factor behind the Fed's plans to continue aggressively raising interest rates," she added. "We expect the Fed to raise rates another 125bps this year."

A separate report from the Commerce Department showed the annual rate of growth in core consumer prices in the second quarter was upwardly revised to 5.0 percent from 4.8 percent.

"To the extent that there are any clear implications for the Fed, that will further support officials' current hawkish stance," said Andrew Hunter, Senior U.S. Economist at Capital Economics.

The surge in core consumer prices, which exclude food and energy prices, was still slightly slower than the 5.3 percent spike in the first quarter.

Adding to the negative sentiment on Wall Street, data from Freddie Mac showed the 30-year fixed-rate mortgage averaged 6.70 percent in the week ending September 29th, up from 6.29 percent the week before.

Sector News

Airline stocks turned in some of the market's worst performances on the day, resulting in a 4.4 percent nosedive by the NYSE Arca Airline Index. The index plummeted to a two-year closing low.

Interest rate-sensitive utilities and commercial real estate stocks also saw substantial weakness, dragging the Dow Jones Utility Average and the Dow Jones U.S. Real Estate Index down by 4.1 percent and 3.1 percent, respectively.

Significant weakness was also visible among semiconductor stocks, with the Philadelphia Semiconductor Index plunging by 3.3 percent to its lowest closing level in almost two years.

Telecom, computer hardware and housing stocks also showed notable moves to the downside amid broad based weakness on Wall Street.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region turned in a mixed performance during trading on Thursday. Japan's Nikkei 225 Index jumped by 1.0 percent, while Hong Kong's Hang Seng Index fell by 0.5 percent.

Meanwhile, the major European markets all showed notable moves back to the downside. While the French CAC 40 Index slumped by 1.5 percent, the German DAX Index and the U.K.'s FTSE 100 Index tumbled by 1.7 percent and 1.8 percent, respectively.

In the bond market, treasuries gave back ground following the surge seen in the previous session. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, rose 4.2 basis points to 3.747 percent.

Looking Ahead

A report on personal income and spending is likely to be in focus on Friday, as the report includes a reading on inflation said to be preferred by the Federal Reserve.