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US stocks rebounded on Thursday from the previous day’s sell-off that was fueled by a hawkish outlook from the Federal Reserve on its path for interest rates.
The Dow Jones Industrial Average (^DJI) was up more than 1%, after 10-straight losing sessions. Meanwhile, the S&P 500 (^GSPC) rose about 1%, and tech-heavy Nasdaq Composite (^IXIC) rallied more than 1%.
Markets are bouncing back after a harsh reaction the day before, prompted by the Fed scaling back the number of rate cuts it expects next year to two, and Chair Jerome Powell said even Wednesday’s decision — cutting rates by a quarter point — was a “closer call.”
Markets interpreted the Fed’s moves as a “hawkish cut” and reacted accordingly, sending the S&P 500 and Nasdaq to their worst days since the summer.
Meanwhile, the blue-chip Dow is in the midst of its longest losing streak in 50 years and looking to break out of that funk on Thursday. The Dow is still up over 12% this year.
On the economic front, the third estimate for third quarter US GDP showed the economy grew at annualized rate of 3.1%, above the previous reading of 2.8%. Other data out Thursday morning showed 220,000 weekly unemployment claims were filed in the week ending Dec. 14, a decrease from the 242,000 seen the week prior.
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The Fed’s ‘pivot’ brought market uncertainty to the forefront
Markets sold off on Wednesday as Federal Reserve Chair Jerome Powell explained why the central bank is expecting to cut interest rates less than expected.
Wall street investment strategists argue the “hawkish” shift by the Fed from a clear easing bias, to one with more uncertainty over when and how much further rates will be lowered, likely drove the negative sentiment in markets.
“The hawkish turn, plus the fact that we’re starting to get more descent [among officials] now, that uncertainty doesn’t really bode well, especially when you’re heading into a year where there’s just this dramatic policy uncertainty around inflation, but also the labor market,” Charles Schwab senior investment strategist Kevin Gordon told Yahoo Finance.
Piper Sandler chief investment strategist Michael Kantrowitz told Yahoo Finance the Fed’s “hawkish tone” was a “extrapolation” of recent moves in the market when few stocks had been rising higher within the S&P 500 as markets had begun pricing in the prospects of higher interest rates and sticky inflation for most of December.
“I would almost describe this as a bit of a light pivot from Powell, certainly from a second derivative,” Kantrowitz said. “And as we know, markets care about derivatives or rates of change in anything.”
Given stock’s roaring bull market rally, and investor sentiment shooting high since Donald Trump’s election win, the “light pivot” from Powell was enough to push markets over the edge.
“It’s sort of a textbook case of you have really euphoric, sometimes somewhat exuberant, sentiment, and then a negative catalyst comes along to tip the market over,” Gordon said. “And that’s exactly what the Fed meeting was.”
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Stocks bounce back at the open
US stocks rebounded on Thursday from the previous day’s sell-off that was fueled by a hawkish outlook from the Federal Reserve on its path for interest rates.
The Dow Jones Industrial Average (^DJI) was up more than 0.8%, after 10-straight losing sessions. Meanwhile, the S&P 500 (^GSPC) rose about 0.9%, and tech-heavy Nasdaq Composite (^IXIC) rallied more than 1%.
All eleven sectors of the S&P 500 were in the green, led by a more than 1.6% surge in Financials (XLF).
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GDP revised higher for Q3, jobless claims fall
The US economy grew at a faster pace than initially expected in the third quarter.
The Bureau of Economic Analysis’s third estimate of third quarter US gross domestic product (GDP) showed the economy grew at an annualized pace of 3.1% during the period, above the 2.8% growth in the second estimate. Economists surveyed by Bloomberg had expected Thursday morning’s GDP reading to remain unchanged.
Also out Thursday, weekly jobless claims fell more than expected with 220,000 filings in the week ending Dec. 14, down from the 242,00 seen the week prior and below the 230,000 economists had expected.
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