Investors got a little from the European Central Bank but they wanted a lot. And they threw a temper tantrum on Thursday to prove it.
Mounting disappointment over the ECB's latest stimulus measures comes at an inopportune time as investors were already on edge over the critical jobs numbers out on Friday. This report marks the last key data on the state of the labor market before the Federal Reserve meets in mid-December.
"People are going to be looking for some kind of a signal from the data on whether the [Fed] will raise rates during its next meeting in December," Steve Blitz, ITG chief economist, told TheStreet. "It should be a number that adds to the general perception that the Fed will finally make its first rate hike [in nearly a decade]."
Economists anticipate the U.S. economy to have added 190,000 jobs to nonfarm payrolls in November, a smaller but no less impressive number than the 271,000 jobs added in October. The unemployment rate is expected to remain at 5%, while average hourly earnings growth should slow to 0.2% from 0.4%.
Stocks closed out with their worst losses since late September with the S&P 500 losing all year-to-date gains. The S&P 500 closed down 1.5%, the Dow Jones Industrial Average slid 1.4%, and the Nasdaq fell 1.7%.
"The market was expecting something [from the ECB] and they didn't get it," Dan Farley, regional investment strategist at U.S. Bank's Private Client Reserve, told TheStreet. ECB members "did ease, but they did not come anywhere close to the expectations that had been set by some of Draghi's words in the past week. The market is just having a kneejerk reaction."
Asset purchases of 60 billion euros will be extended past their September 2016 expiration by six months or "beyond" if necessary, ECB President Mario Draghi said Thursday. Draghi said the program was being extended because it was working, not failing. The ECB also cut its deposit rate to -0.3% from -0.2%, though left its key lending rate unchanged at 0.05%.
But analysts were expecting more. Forecasts were for the deposit rate to be cut to -0.4% and for asset repurchases to be increased above the current level of 60 billion euros. This ECB meeting had seen an increased level of anticipation with investors betting big on more of a commitment from ECB members to use the tools at their disposal to boost the economy.
"The ECB has comprehensively failed to live up to its own hype and markets and forecasters will take future communications from Mr. Draghi and colleagues with a corresponding bucket of salt," said Jonathan Loynes of Capital Economics.
While analysts mightn't have gotten what they were expecting in this round, Farley advises investors not to lose hope in the ECB -- after all, there's always January's meeting.
"What we see today is very transitory in nature. Expectations weren't met for December 3, 2015 but it doesn't mean that the ECB is not going to meet those expectations in time," said Farley. "There's still the opportunity for the ECB to do more, especially if inflation stays low, it doesn't mean that we're not going to get everything that investors wanted, it just means that we didn't get it today."
A growing divide between what the ECB plans to do and what our own central bank, the Federal Reserve, has planned made for extremely volatile trading on Thursday. Fed Chair Janet Yellen reiterated her optimism over the U.S. economy on Thursday, paving the way for a December rate hike. The economy has "recovered substantially since the Great Recession," Yellen said in prepared remarks to U.S. Congress on Thursday.
The odds of a December rate hike are currently at around 70%, indicating that investors are more confident than not that the first move higher in nearly a decade will happen before the end of the year. Some argue that the first rate hike is less important than the pace at which the Fed normalizes rates.
"The question is how aggressive will they be," Sharon Stark, managing director and fixed-income strategist at D.A. Davidson, told TheStreet. "At least one Fed President, Charles Evans (non-voter but an alternate in 2016) of Chicago, would like to see more signs of inflation before lifting the Fed funds rate, but most voting members are likely to raise rates, hence the market is positioning for lift off [in] December."
In earnings news, Aeropostale (ARO) slid more than 25% after quarterly sales slumped 20% with same-store sales dropping 10% from a year earlier. Dollar General(DG) - Get Report rose 4% after reporting a 2.5% increase in same-store sales in its recent quarter driven by food and seasonal items.
Sears (SHLD) fell more than 7% after the embattled retailer reported a wider-than-expected net loss in its third quarter. The company lost $2.86 a share over the quarter, 2 cents more than estimates, while domestic comparable-store sales tumbled 8.6%.
Box(BOX) - Get Report plummeted 11% despite a better-than-expected third quarter. The cloud-computing company reported a loss of 31 cents a share, in line with estimates, while sales jumped nearly 40% to $78.7 million, beating forecasts by $2 million.