Updated at 5:20 pm EST
U.s stocks finished lower sharply lower Thursday, even as Treasury bond yields eased and the dollar held steady against its global peers, as investors continue to track interest rate markets ahead of next week's Fed policy meeting.
Tech stocks extended their slump into correction territory, with traders first buying beaten-down shares in the Nasdaq Composite amid the worst January performance for the Nasdaq since 2008 before dumping them late in the afternoon session in a broader Wall Street sell-off.
The Dow Jones Industrial Average closed 312 points lower, or 0.89%, on the session at 34,715.39 points while the S&P 500 ended 50.03 points to the downside at 4,482.73 points. The tech-heavy Nasdaq lost 186.23 points to 14,154.02. All three indexes had traded sharply higher at the start of the day.
With between three and four rate hikes anticipated from the Fed this year, traders and investors are also looking at the difference in response from policymakers around the world, with China cutting rates in order to stoke post-pandemic growth and the European Central Bank hinting Wednesday that it may not need to move as 'boldly' as the Fed to tame record inflation in the region.
"The rate increases are a necessary adjustment as we return to normal. They have certainly generated turbulence in markets in recent days, and we might well get more turbulence before this scenario is over," said Brad McMillan, CIO for Commonwealth Financial Network in Waltham, Mass. "Market turbulence, however, is normal as well. It’s not necessarily a sign of a larger problem. Keep calm and carry on; the current rate cycle is a needed—and overdue—return to normal."
China Rate Cut
However, the People's Bank of China cut one-year and five-year prime mortgage loan rates by 10 and 5 basis points Thursday -- 3.7% and 4.6% respectively -- following on from Monday's surprise move to lower short and medium term interest rates for the broader financial system, as PBOC Vice Governor Liu Guoqiang urged the central bank to "hurry up ... move ahead of the market curve, and respond to the general concerns of the market in a timely manner."
The rate move gave Chinese tech stocks a boost, with the CSI200 rising 0.9% and the region-wide MSCI ex-Japan benchmark higher as well. However, it also spooked U.S. traders into bidding up Treasury bonds -- pushing yields lower -- amid concerns for growth prospects in the world's biggest export market.
On Wall Street, geopolitical tensions also influenced risk appetite over the coming weeks after President Joe Biden warned late Wednesday that Russia may "move in" on the Ukraine, adding that "it is going to be a disaster for Russia" if any invasion rises past what he called a "minor incursion".
Higher-than-expected jobless claims for the period ending on January 15, which rose by 55,000 to 286,000, as well as a solid reading for the Philadelphia Fed manufacturing index arrived before the start of trading, with investors also awaiting a key quarterly earnings from Netflix (NFLX) - Get Netflix, Inc. Report that unofficially kicks-off the start of the tech reporting season after the closing bell.
Ford (F) - Get Ford Motor Company Report shares fell 3.6% after analysts at Jefferies lowered their rating on the carmaker ahead of the group's fourth quarter earnings early next month.
United Airlines (UAL) - Get United Airlines Holdings, Inc. Report shares slipped 3.4% after the carrier posted a narrower-than-expected fourth quarter loss but cautioned that Omicron disruption would delay its near-term recovery.
American Airlines (AAL) - Get American Airlines Group, Inc. Report shares fell 3.2% after a narrower-than-expected fourth-quarter loss and revenue numbers that beat Wall Street forecasts as the carrier continued to struggle ferrying passengers across the skies amid ongoing pandemic-induced turbulence at a profit.
Advanced Micro Devices (AMD) - Get Advanced Micro Devices, Inc. Report shares slipped nearly 5% after analysts at Piper Sandler cut their rating and price target on the chipmaker, citing a tepid market for PC semiconductors.
Beyond Meat (BYND) - Get Beyond Meat, Inc. Report shares ended down 2.8% after McDonald's (MCD) - Get McDonald's Corporation Report said it would expand the test market for its plant-based burger starting next month.
In overseas markets, Europe's Stoxx 600 ended up 0.5%, while Japan's Nikkei 225 rebounded from yesterday's Sony-lead slump with a 1.11% gain to close at 27,772.93 points.