Benchmarks closed sharply lower on Thursday after investors worked their way through the Federal Reserve’s hawkish stance on monetary policies and an array of economic data.
How Did the Benchmarks Perform?
The Dow Jones Industrial Average (DJI) skid 29.79 points, or 0.1%, to close at 35,897.64 led into the red with a 3.9% decline in shares of Apple Inc.
AAPL
. The iPhone maker carries a Zacks Rank #3 (Hold). You can see
the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The S&P 500 fell 41.18 points, or 0.9%, to close at 4,668.67 on Thursday, dragged into the red with 2.9% and 2.2% decline in the technology and consumer discretionary sectors, respectively. Three of the 11 major sectors of the broader index closed in the red, and overshadowed gains from financials and materials sectors.
News of revamp in the monetary policy rattled the tech-laden Nasdaq Composite Index, it closed at 15,180.43, after declining steeply 385.15 points, or 2.5%. It is Nasdaq’s biggest one-day point and percentage loss since Sep 28. Among the index’s biggest decliners was Adobe Inc.
ADBE
, shares plunged 10.2% on Thursday despite record performance in the fourth-quarter fiscal 2021, leading to revenue exceeding $15 billion for the financial year. For the quarter, Adobe reported earnings of $3.20 per share, above the Zacks Consensus Estimate of $3.18. Investors’ sentiment got clouded as the company’s guidance came in lower than expected.
On Thursday, the fear-gauge CBOE Volatility Index (VIX) increased 6.6%, to close at 20.57. Advancing issues outnumbered declining ones on the NYSE by a 1.38-to-1 ratio. The S&P 500 recorded 69 new 52-week highs and three new lows, while the Nasdaq Composite posted 39 new highs and 106 new lows.
Fed’s Hawkish Stance Weighs on Markets
On Wednesday, Federal Reserve Chairman Jerome Powell announced a more aggressive plan to hike rates in 2022 and wind down asset purchases from $15 billion per month to $30 billion per month effective January. The majority of the Fed members are expecting three rate hikes in 2022, which will be followed by two rate hikes in 2023 and 2024. While investors were digesting FOMC’s statement from the day before, news from European banks hit investors. The Bank of England announced an interest rate hike leading the benchmark to 0.25% from 0.10%. This unexpected rate hike makes BOE the first major central bank to lift interest rates since the pandemic began. Additionally, the European Central Bank announced a plan to further slow purchases of assets under its Pandemic Emergency Purchase Program, in the first quarter of 2022 and bring a close in by March. However, there were no signals of a rate hike in 2022.
While Fed’s hawkish stance did not come as a surprise to investors, tech and other growth-oriented sectors took a hit and fell sharply. Shares of tech and semiconductor companies declined significantly. Skyworks Solutions, Inc.
SWKS
and Xilinx, Inc.
XLNX
closed at least 8.2% lower, followed by a 7.5% decline in Trip.com Group Limited
TCOM
. Tech bigwigs like Tesla, Inc.
TSLA
fell 5%, and FAANG stocks closed at least 1% lower.
Initial Jobless Claims Remain Near Lowest Levels
Yesterday the government reported that for the week ending on Dec 11, initial jobless claims increased to 206,000, above the consensus estimate of 197,000 and upwardly revised figure from the prior week of 188,000. Though the increase was tied to seasonal and temporary hiring, claims are still significantly low, and hovering around the lowest level since 1969. Businesses are trying to fill up open jobs by offering higher incentives and avoiding layoffs due to the historical labor shortage.
For the week ending Dec 4, continuing claims declined by 154,000 to 1.85 million and have now returned to pre-pandemic levels.
Housing Starts and Building Permits Up in November
On Thursday, the U.S. Census Bureau and the U.S. Department of Housing and Urban Development jointly reported that building permits of new housing units increased 3.6% in November, at a seasonally adjusted annual rate of 1,712,000. The consensus estimate for last month was 1,660,000 and October’s figures were also upwardly revised to 1,653,000.
The report also stated that housing starts in November were at a seasonally adjusted annual rate of 1,679,000, a 12% from October, and above the consensus estimate of 1,566,000. A strong optimism among home builders with millennials reaching the prime home-buying years is driving strong demand.
Industrial Output Edge Up
In a separate report, the Federal Reserve stated that industrial productions rose 0.5% in November, slightly lower than the consensus estimate of 0.6% and the previous month’s upwardly revised gain of 1.7%. Capacity utilization also rose to 76.8% from 76.5% in October. The figure was in line with consensus estimates and reflects the parameter is at the strongest since before the coronavirus outbreak. Manufacturing has risen at a 5.3% annual rate in November and is at its highest level since September 2019, led by strong gains in mining, which includes oil production.
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