The combination of hawkish comments from regional Federal Reserve presidents and bad news out of Afghanistan on Thursday sent stocks skidding lower into the close, says Jon Markman, editor of Pivotal Point.
The S&P 500 fell to 4,470, a loss of 0.6%. The weakness snaps a four-day winning streak and helps bears make the case that the recent rally is fragile. I’m fairly certain that the narrative won’t stick.
The problem for bears is every decline since March 2020 has been bought aggressively by bargain hunters. The idea that the Fed is merely slowing the monthly purchase of fixed-income investments may not be enough change the “buy the dip” fervor. With 10-Year Treasury bond yields at 1.4% there is not a compelling alternative to stocks.
I’m watching the first support level at 4,440 for the benchmark S&P 500. If that level fails, there is further support at 4,370. The Dow Jones Industrial Average declined 0.5% to 35,213.12, and the Nasdaq Composite sank 0.6% to 14,945.81. All sectors were in the red save real estate stocks, which were little changed. Energy had the steepest decline. The US 10-year Treasury yield was unchanged at 1.34%.
Breadth favored decliners over advancers by a 5-2 margin and there were just 202 new one-year highs vs. 48 new lows. Leaders on the new high list included Alphabet, ASML Holdings, Morgan Stanley, Waste Management, NXP Semi, Fortinet, and ServiceNow.
St. Louis Federal Reserve Bank President, James Bullard, and Kansas City Fed President, Esther George, followed Dallas Fed President, Robert Kaplan, in advocating the quick establishment of a timetable for tapering the Fed's $120 billion in current monthly asset purchases of US Treasuries and government-backed mortgage debt. They also questioned the effectiveness of the program adopted last year in the current economic environment.
Bullard said the Fed should "get going" on tapering because, while the asset purchases were appropriate at beginning of pandemic, it's time to reevaluate the policy given the arrival of vaccines. He said the purchases now run the risk of creating bubbles in financial markets and fueling inflation.
Preliminary estimates show US corporate profits jumped 9.7% to a record high of $2.42 trillion in the second quarter. This comes as second-quarter US GDP growth was revised up to a 6.6% annualized rate from 6.5% in the advance estimate, short of expectations for an upward revision to 6.7% in a survey compiled by Bloomberg.
Meanwhile, initial jobless claims rose by 4,000 to 353,000 during the week ended Aug. 21, according to the US Department of Labor on Thursday. Analysts polled by Econoday had expected a drop to 340,000. Previous week's figure was also revised higher by 1,000.
In corporate news, Dollar Tree's (DLTR) shares sank 12%, the worst performance on S&P 500, after the discount stores chain cut its fiscal full-year earnings outlook while delivering a fiscal second-quarter beat.
Analog Devices (ADI) increased its share buyback program by $8.5 billion to about $10 billion, according to a statement released late Wednesday. Shares were up 2.5%.
The top performer on the Dow was Salesforce (CRM), up 2.7%. The customer relationship management software provider raised its full-year revenue guidance yet again, saying demand remains strong amid a global wave of digital transformations.
Learn more about Jon Markman at Pivotal Point.
