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(City Index)
Stocks were clinging to small gains after midday Wednesday, pulling back from session highs as bulls looked for a bounce following a rout the previous session sparked by a signal from the Federal Reserve that the pace of interest-rate cuts will slow in 2025.
The Dow Jones Industrial Average was up around 175 points, or 0.4%, attempting to snap a 10-day losing streak, while the S&P 500 and Nasdaq also bounced by around 0.4% after sharp losses on Wednesday.
What do technical analysts say after Wednesday’s carnage? Here’s Fawad Razaqzada of City Index and Forex.com in a Thursday note:
“The S&P 500 has bounced back from the post-FOMC lows but remain[s] at critical technical levels. The 5,831-5,882 zone, a previous resistance area in October, has now turned into a key support. The mid-November test of this area held, and it has done so again for now. As long as this zone holds, a deeper correction might be averted.
“However, if the index breaks decisively below this range, it could trigger a drop toward 5,772 initially, with the July high at 5,670 acting as subsequent support. A breach below these levels could expose the long-term bullish trendline and the 200-day moving average near 5,540,” he said.
UnitedHealth’s stock was resuming its recent selloff, and was leading the Dow’s decliners on an up day, a day after being the lone gainer on a big down day.
The stock was shedding $12.87, or 2.6%, in recent trading. That was cutting about 79 points off the price of the Dow, which was up 193 points.
Amid concerns over bipartisan political pressure on drug pricing and public backlash over healthcare coverage policies, the stock has tumbled 20.2% so far in December, which puts it on track for the worst monthly performance since it plunged 30.6% in February 2009.
The stock has shaved 758 points off the Dow’s price month to date, while the Dow has lost 2,390 points.
Wednesday’s steep selloff in the U.S. stock market triggered a sudden spike in Wall Street’s “fear gauge,” posing a buying opportunity for investors and may spark a strong year-end stretch for stocks, according to market analysts.
“The sudden spike in the VIX strongly suggests that Wednesday’s selloff is a near-term buying opportunity. Unless some other powerful negative catalyst comes along, which we do not see happening, we believe U.S. stocks will be higher a month from now than where they closed Wednesday,” Nicholas Colas, co-founder at DataTrek Research said in a Thursday client note.
Colas said the VIX hit a “buy” signal for stocks after spiking to its 14th highest close since the start of the current bull market in October 2022.
“The VIX has closed above 27 on only 16 occasions out of 565 trading days, or just 2.8% of the time. 12 of those were in October 2022 itself, and a month later the S&P 500 was up 4.6%. Three occurred in early August, when the Japanese yen rapidly appreciated and created a few days of havoc in global markets. A month later the S&P was up 5.2%,” Colas wrote.
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Shares of C3.ai Inc. are down 12.5% Thursday after KeyBanc Capital Markets downgraded the business software and artificial-intelligence play to underweight.
The stock is on pace for its largest daily percentage decline since June 1, 2023, when it fell 13.2%, Dow Jones Market data show.
KeyBanc analyst Eric Heath highlighted concerns that consensus fiscal year 2026 and 2027 revenue estimates may be too high and also pointed to the company’s “large operating losses.”
An exchange-traded fund that invests in U.S. stocks in the home-building sector was down sharply Thursday, extending losses amid a rise in long-term interest rates in the bond market.
The iShares U.S. Home Construction ETF was falling 2.6% Thursday morning, deepening its loss so far this month to more than 16%, according to FactSet data, at last check. The ETF was on track for an eighth straight day of declines, which would mark its longest losing streak since September 2021, according to Dow Jones Market Data.
Oil prices had been dragged lower with equities after Wednesday’s settlement as “traders reacted negatively to the Fed’s ‘hawkish cut’ and as such, it was natural for oil to participate” briefly in Thursday morning’s modest relief rally in stocks, said Tyler Richey, co-editor at Sevens Report Research.
The relief rally in equities, however, has lost some steam in Thursday dealings and oil turned lower “as risk assets broadly are trading with a high degree of correlation as the economic implications of the Fed’s considerably less dovish tone coming out of the December meeting continue to be assessed,” Richey said.
West Texas Intermediate crude for January delivery fell 8 cents, or 0.1%, to $70.50 a barrel on the New York Mercantile Exchange ahead of the contract’s expiration at the end of the session. The more actively traded February contract shed 23 cents, or 0.3%, to $69.79 a barrel. February Brent crude was down 11 cents, or 0.2%, at $73.28 a barrel on ICE Futures Europe.
Gold futures dropped Thursday to their lowest level in more than a month, a day after the Federal Reserve signaled a slower pace of interest-rate cuts next year than previously expected.
“The Fed is wrestling with sticky prices and an economy which is showing signs of slowing down,” Chris Mancini, portfolio manager at Gabelli Funds.
“Higher rates raise the opportunity cost to holding gold, so are negative on the margin,” he said. “If we enter a stagflationary environment, however, gold should do very well as savers look for an asset which will hold its value as prices rise and real earnings decline.”
In Thursday dealings, gold for February delivery fell $48.80, or 1.8%, to $2,604.50 an ounce on Comex. It touched an intraday low of $2,596.70, the lowest for a most-active contract since Nov. 18, according to Dow Jones Market Data. Prices have lost around 2.6% week to date, but have still gained nearly 26% for this year so far.
Wednesday’s selloff helped shake investors’ confidence in what has been a heavily momentum-driven bull market.
But the fact that the market already appeared to be bouncing back on Thursday should help to alleviate concerns that a more painful pullback might be in store, according to Thomas Martin, senior portfolio manager at GLOBALT Investments.
“It’s been a momentum market, and when the momentum turns, it turns hard in the other direction,” he said during an interview with MarketWatch on Thursday.
Stocks will likely keep taking their cues from the bond market, Martin said. So investors should keep a close eye on the yield curve, which continued to steepen on Thursday with the yield on the 10-year Treasury note climbing even higher.
He also said investors were “definitely paying attention” to the latest government-shutdown battle raging in Congress. But he said he doubted that it was having much of an impact on markets so far.
“I think the market is paying attention to it, but I think that it’s really hard to judge how much of an impact it’s having, and there are things that are far more important like the Fed and interest rates and inflation and unemployment,” Martin said.
U.S. stocks have seen a post-open pop start to fade in recent trading, with the Dow up less than 150 points on the session.
Here is where major indexes stood in recent trading:
The S&P 500 was up 34 points, or 0.6%, at 5,906.
The Nasdaq Composite was up by 128 points, or 0.7%, at 19,520.
The Dow was up by 158 points, or 0.4%, at 42,491.
(Dave Kotinsky/Getty Images)
If you want an explanation for why Wednesday’s shift by the Federal Reserve sent stocks stumbling and bond yields and the dollar jumping, just look to a popular children’s book.
Peter Boockvar, chief investment officer at Bleakley Financial Group, in a Thursday note, compared the market setup to the plot of “If You Give A Mouse A Cookie.” In the tale, a boy gives a mouse a cookie; the mouse then asks for a glass of milk, then a straw, then a napkin and so on.
In Boockvar’s telling, market participants are the mouse. “The Fed gives the market some guidance on rates and the market then goes too far with pricing it.”
“Going into yesterday’s Fed announcement and dot plot, the December 2025 contract was pricing in EXACTLY 50 bps (basis points) of cuts next year, thus 2 more of 25 bps. And the dot plot went to EXACTLY that. Instead of accepting that the Fed is now more in-line with the market pricing, market pricing took it even further and now there is just a 44% chance of a 2nd cut by year end 2025. The first cut for next year is now fully priced in by July.”
That means Wednesday’s moves in stocks and bonds weren’t due to “some shock thing” by the Fed, he said. Instead, the Fed merely shifted to what the bond market had already priced in. The moves may reflect “a reversal of a market that got way too giddy over the past month, that got way too frothy in certain parts of the market and priced itself no room for error,” Boockvar said.
