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Stock opened mixed Thursday morning after equities did an about-face in the previous session, plummeting from record highs as investors mulled the likelihood of tighter Federal Reserve policy and interest rate hikes as soon as March.
The Nasdaq and Dow extended declines, while the S&P 500 ticked up slightly. Wednesday marked a bearish day for markets, spurred by the release of minutes from the Federal Open Market Committee’s (FOMC) meeting December 15 that flagged concerns from policymakers about worsening inflation and signaled more aggressive intervention by the central bank.
Renewed pressures in tech amid interest rate worries sent the Nasdaq spiraling 3.1% on Wednesday in its biggest drop since March, and the S&P 500 shed 1.9%, dragged down by losses in real estate. The Dow Jones Industrial Average tumbled more than 1%, falling for the first time this year.
“We actually like tech for all of 2022 in our outlook, but there’s no doubt that tech is going to take it on the chin when the yield curve does what it does,” Wells Fargo CIO of Wealth & Investment Darrell Cronk told Yahoo Finance Live. “[The response to] Fed meeting minutes suggests that long-duration assets like tech or REITs that are interest-rate sensitive will really come under pressure in moments when you believe the Fed is going to take a more hawkish stance.”
The minutes, underscoring this hawkishness, helped the benchmark 10-year Treasury yield top 1.7%, its highest level since April.
“The primary piece of the puzzle is the Fed,” Zephyr market strategist Ryan Nauman told Yahoo Finance Live. “Markets don’t really react too greatly to when the Fed starts hiking rates — it’s the pace — and if the Fed increases the pace of interest rate hikes and there are a couple of surprise hikes in there to tame inflation, that’s when we can really get an impact on equity markets and see a steep pullback.”
Investors weighed a fresh read on initial weekly jobless claims Thursday morning that showed first-time unemployment filings ticked up but remained near a 52-year low last week, signaling continued recovery in the labor market as high demand for workers pours into the new year. The Labor Department’s latest read on initial jobless claims showed 207,000 Americans filed for unemployment in the week ending January 1.
Employment figures will remain in the spotlight for the rest of this week. The monthly jobs report due for release on Friday is expected to offer a more meaningful look at the strength of hiring and labor force participation — key measures of the U.S. economy.
Traders also assessed data on Wednesday that showed private payroll gains last month surpassed economist estimates. ADP, whose report sets expectations for Friday’s “official” government jobs numbers, reported private sector employers added back 807,000 jobs during the final month of November, nearly doubling consensus forecasts and suggesting job growth picked up to help relieve some labor shortages.