U.S. stocks traded lower on Thursday and pointed to a third consecutive decline as rising Treasury yields continued to put pressure on equities while investors digested second quarter earnings reports.
- Dow Jones Industrial Average DJIA falls 131 points, or 0.4%, to 35,152.
- S&P 500 SPX dropped 19 points, or 0.4%, to 4,494.
- Nasdaq Composite COMP fell by 31 points, or 0.2%, to 13,942.
On Wednesday, the Dow Jones Industrial Average fell 348 points, or 0.98%, to 35283, the S&P 500 declined 63 points, or 1.38%, to 4513, and the Nasdaq Composite dropped 310 points, or 2.17%, to 13973.
What’s driving markets
U.S. investors received another update on the labor market on Thursday, this time it was weekly data on the number of Americans applying for unemployment benefits. The figure inched up to 227,000 last week, although economists continue to see no signs of rising layoffs.
A day earlier, the market reacted negatively to a news that U.S. private-sector payrolls grew strongly in July. Strong labor-market data are seen as hurting the chances that the Federal Reserve might abstain from another interest-rate hike when its top policymakers meet in September.
On Friday, investors will receive the July nonfarm payrolls report from the Department of Labor. Economists expect to see that 200,000 jobs were created last month.
But before that, investors will receive earnings from Apple Inc. AAPL, -0.59% and Amazon.com Inc. AMZN, +0.04%, two members of the “Magnificent Seven” group of megacap technology names that have powered much of this year’s stock-market rally after the market closes Thursday.
The decision late Tuesday by Fitch Ratings to downgrade the U.S. credit rating has continued to impact both Treasurys and, by extension, U.S. stocks. It’s complicating investors’ feelings about Treasury debt just as the Treasury is preparing to issue $1 trillion in new debt during the third quarter.
Fitch’s decision was criticized by observers including former U.S. Treasury Secretary Larry Summers and JPMorgan CEO Jamie Dimon, but yields have pushed higher.
Late Wednesday, Pershing Square Capital Management founder Bill Ackman revealed he was betting against 30-year Treasury bonds. The yield on the 30-year Treasury BX:TMUBMUSD30Y was up more than 8.6 basis points at 4.248% in recent trade, on track to settle at its highest level since November, according to FactSet data. Higher bond yields can weigh on stock valuations by enticing investors away with better comparative returns.
“Equity markets, specifically the Nasdaq, was spooked by the news that the Treasury Department boosted the size of its quarterly sale of longer-term debt for the first time in over 2 ½ years,” said Kent Engelke, chief economic strategist and managing director at Capitol Securities Management.
Shares of the largest companies in the U.S. Chipmaker Advanced Micro Devices AMD, +4.27% ended sharply lower Wednesday despite an initially positive reaction to its earnings.
The largest U.S. companies have struggled to see positive share-price reaction to better-than-expected results this reporting season, which raises the bar for Apple AAPL, -0.59% and Amazon.com AMZN, +0.04%, which each report results after the close.
According to Evercore ISI, the average stock price reaction for the 368 S&P 500 companies so far that have reported results is -0.7%.
All of these factors are adding up to a lackluster start to August, a month that typically sees some of the weakest stock-market returns of the year. The S&P 500 fell 1.4% on Wednesday, its biggest drop since April, and some analysts see scope for the pullback to continue in the days and weeks ahead. The Nasdaq Composite shed more than 2% in its biggest pullback since December.
“Although the slide is far from suggesting a major trend reversal, if incoming U.S. data, and especially the U.S. jobs report on Friday, forces market participants to raise their implied Fed rate path, the correction may continue for a while longer,” said Charalampos Pissouros, senior investment analyst at XM.
“That said, apart from changes in the macroeconomic and monetary policy outlooks, equity traders will probably pay special attention to earnings results by Amazon and Apple, which are scheduled to be released after the closing bell today.”
A reading on the strength of the U.S. services sector from the Institute for Supply Management ticked lower to 52.7% in June after ISM’s gauge of manufacturing activity released earlier this week showed some improvement, although the business-activity gauge showed manufacturing activity remained in contractionary territory.
Companies in focus
- Qualcomm Inc. QCOM, -10.61% tumbled after the chip maker tied revenue growth to recoveries in the smartphone market and China.
- PayPal Holdings Inc. PYPL, -11.87% fell 8% after the payments company reported quarterly revenue slightly above Wall Street expectations but its credit business raised concerns.
- MGM Resorts International MGM, -7.59% shares fell despite the casino and resort operator reporting second-quarter results that beat expectations, helped by the lifting of pandemic restrictions in global gaming hub Macau.
- Robinhood Markets Inc. HOOD, -6.69% shares fell after the stock-trading app reported revenue and profit that beat expectations but a drop in transaction sales and monthly active users.
- Moderna Inc. MRNA, +1.32% rallied after the COVID vaccine market posted a narrower-than-expected second-quarter loss and revenue that was far below last year’s but still topped consensus estimates.