Dow falls 250 points as rise in jobless claims and bond yields pressures stocks

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MARKET SNAPSHOT

U.S. stock indexes traded sharply lower Thursday as investors digested economic data showing little improvement in the labor market and weighed a rise in bond yields on worries about potential inflation with oil prices at a 12 month high and copper prices near a decade high.

An increasing pace of coronavirus vaccinations, declining COVID case numbers, good quarterly corporate earnings, and hope for a better economy in the second half of 2021 have helped to lift stocks to record highs this month but investors were finding few reasons to drive stocks higher still.

How are stock benchmarks performing?

  • The Dow Jones Industrial Average sinks 253 points, or 0.8%, to reach 31,360.
  • The S&P 500 index was trading 34 points, or 0.9%, lower at around 3,897.
  • The Nasdaq Composite was giving up 166 points to 13,800, a drop of 1.2%.

On Wednesday, the Dow booked its third straight record close but the S&P 500 and the Nasdaq Composite indexes finished in negative territory.

What’s driving the market?

Market participants were digesting some signs of weakness in the overall U.S. economic recovery, after weekly jobless claims came in at 861,000, marking the highest level in a month and reading of manufacturing activity also fell short of expectations.

“The jobless claims data continue to paint a bleak labor market picture with 1.38 million new claims for jobless benefits last week, the highest tally since early December,” wrote Lydia Boussour, lead U.S. economist and Gregory Daco, chief U.S. economist at Oxford Economics, in a Thursday note.

“The latest jobless claims data are consistent with the downbeat message from labor market indicators at the start of the year,” the economists wrote.

Video: Wall Street points to a slightly lower open following another mixed session (CNBC)

Wall Street points to a slightly lower open following another mixed session
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Meanwhile, a reading of manufacturing activity in the Federal Reserve’s Philadelphia region, the Philly Fed Manufacturing Index, fell to 23.1 in February from 26.5 in prior month. Any reading above zero indicates expansion in the manufacturing sector.

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Disappointing economic data was compounded by weaker than expected results from Walmart early Thursday, Colin Cieszynski, chief market strategist, at SIA Wealth Management said .

“Walmart, the world’s largest retailer, posted disappointing results, suggesting that the strong January for US retail sales reported yesterday may not have been enough to offset November-December weakness,” he said in a daily research note.  

The U.S. economy has been showing signs of steady, if not rapid, improvement, underscored by retail sales figures, which showed a seasonally adjusted rise of 5.3% in January from a month earlier, while data on manufacturing output has been nearing its best levels in a year.

The data come against the backdrop of declining cases of coronavirus in the U.S., with the nation averaging 77,661 new cases a day in the past week, down 43% from the average two weeks ago, and so far 57.4 million Americans have been vaccinated or 17% of the population, at a rate of 1.61 million doses a day, according to data aggregated by Johns Hopkins University.

Market participants have pointed to progress on more fiscal stimulus from Congress as one cause for optimism for stock buying on Wall Street. Washington lawmakers are still negotiating the terms of the president’s $1.9 trillion COVID aid package. The Biden administration is also next month is expected to release a plan to outline his “Build Back Better” agenda that will focus heavily on infrastructure. On Wednesday, President Joe Biden laid out some elements of his plans to labor leaders.

However, bets that the economy will eventually improve sometime this year have resurrected fears of a rapid rise in inflation, pushing government bond yields higher, with the 10-year Treasury note around 1.3%, around its loftiest level in over a year. But the prospect of higher borrowing costs are overshadowing risky assets as they trade at near record highs.

Meanwhile, investors were keeping one eye trained on brutal winter conditions that is causing millions of Americans to remain without power in places like Texas, as winter storms buffet much of the U.S. The weather has delivered a jolt to natural-gas prices and pushed crude-oil values to their highest levels in more than a year.

Separately, the House Financial Services Committee at noon Thursday began questioning several of the principal actors in the GameStop stock saga following public outcry against online trading platform Robinhood and other brokers’ decisions to briefly restrict trading in stocks including GameStop Corp. and AMC Entertainment Holdings

In other economic reports, a report on housing showed that building permits rose 10.4% in January to 1.88 million annual rate, while housing starts fell 6% last month to 1.58 million annual rate. And a reading of trade showed that U.S. import prices jumped 1.4% in January, marking the biggest increase since 2012.

Which stocks are in focus?

  • Walmart Inc. approved a $20 million buyback program and raised its dividend by 4 cents to $2.20 a share on Thursday as it delivered its quarterly results . Shares were down 5.2%.
  • Marriott International Inc. shares MAR slid 0.6% Thursday, after the hotel operator posted a loss and weaker-than-expected revenue for the fourth quarter as the coronavirus pandemic kept travelers away.
  • Rigel Pharmaceuticals Inc. shares RIGL rose 10.5% Thursday, after the company said it has agreed to join with Eli Lilly and Co. in developing RIPK1 Inhibitors to treat immunological and neurodegenerative diseases.
  • Shares of Hormel Foods CorpHRL were up 1.9% Thursday, after the parent of food brands including SPAM, SKIPPY, Hormel deli meats and chili and Applegate reported fiscal first-quarter results that topped expectations.
  • Shares of Barrick Gold Corp. GOLD fell 1.3%, after hitting a10-month closing low on Wednesday, despite the gold miner reporting fourth-quarter profit and revenue that beat expectations.
  • Shares of Twilio Inc.  were up 8% after the software company reported fiscal fourth-quarter results.

How are other assets performing?

  • The yield on the 10-year Treasury note  TMUBMUSD10Y fell 2 basis points to around 1.28% on Thursday. Bond prices move in the opposite direction of yields.
  • The ICE U.S. Dollar Index DXY, a measure of the currency against a basket of six major rivals, was off 0.3%.
  • Oil futures edged lower as energy disruptions continued throughout the country, with the U.S. benchmark CL.1 down 0.2% to trade at $61.02 a barrel. 
  • Gold futureGC00 were 0.1% higher but remained below $1,800 an ounce, after skidding 1.5% on Wednesday.
  • The pan-European Stoxx 600 index SXXP fell 0.8% and London’s FTSE 100 stock index UKX tumbled 1.4%.
  • Markets in Hong Kong HSI closed 1.6% lower, while Japan’s Nikkei 225 index NIK shed 0.2%. China’s Shanghai Composite Index finished up 0.6%, while the CSI 300 closed down 0.7%.
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