Stocks tumbled Thursday and risk sentiment was poor. This came after the market grappled for most of the day with mixed economic signals.
The S&P 500 fell 1.76%, partly dragged down by the tech components of the Nasdaq, which fell 1.99%. In a clear risk-off move, the 10-Year Treasury yield fell to 0.68 %. Yields fall when prices rise. The price of crude oil fell 2.68% to $37 a barrel.
Tech stocks, which had bounced to start the week from their weeks-long correction, continued to be pressured. Growth companies heavily weighted towards at-home services like cloud, e-commerce and streaming have benefited hugely in 2020 and have seen their stocks outperform value stocks by a wider margin than that seen in 2000 before the tech bubble bursted. Now, although investors began the week buying the dip, many say investors may be in the midst of a broader reassessment of valuation in growth tech, which may have seen a massive pull-forward of demand into earlier years in valuations. The Nasdaq is up just under 1% since Tuesday morning, but still down 9% since Sept. 2, the start of the correction. Oracle (ORCL) - Get Oracle Corporation Report shares, not trading at an incredibly stretched valuation by near-term historical standards, were only down 0.26% into earnings after the bell.
Cyclical stocks, trading at valuations much more tolerable compared to interest rates, began the day mixed. By day’s end, consumer discretionary, which was strong for most of the trading session, fell more than 0.5%. Digitally strong brands like Nike (NKE) - Get NIKE, Inc. (NKE) Report were stronger, with Nike only down 0.07%. The stock got a price target boost from analysts at Wedbush Securities. Oil, banking, industrials and materials were all down considerably, in some cases 3%.
The economic data impacting these moves were mixed, but ultimately viewed negatively by investors.
Jobless claims for the past week, at 880,000 were worse than the expected 840,000 and barely budged from last week’s number of slightly under 1 million. The recent jobless claim results have been slightly better than the 1 million seen for months after May, but the speed of the economic recovery seems to be slowing. Positively, inflation for producers beat estimates, with the producer price index up 0.3% for August against estimates of 0.2%. Still, investors want to see a faster rise in inflation.
In order for the economy to maintain its speed of recovery, many investors note, the next fiscal stimulus bill, which may include far smaller grants to households and small businesses, must be robust.
Here’s what Wall street’s saying:
Steven Ricchiuto, Chief U.S. Economist, Mizuho Securities:
"As soon as the August PPI report was released this morning, I received an email from an investor/client who is clearly in the inflation camp, suggesting that this morning’s report is just the first piece of evidence that the Fed’s new operating procedure will lead to decidedly higher rates. Producer prices did rise by more than expected, with the headline up 0.3% following a 0.6% rise in July, for the second consecutive gain after several months of largely depressed reports. The core PPI was also up by more than expected, rising by 0.4% after a 0.5% rise in July. The year-over-year price measures also accelerated, but remained at low levels of 0.6% and 0.3%, respectively. However, the gain in wholesale prices was principally the result of higher service prices, as margins charged in a number of industries increased. Nearly 20% of the advance in final demand for services was attributable to a 1.1% increase in margins for machinery, equipment, parts, and supplies at the wholesale level. The indices for automobiles and auto parts retailing, truck transportation of freight, food retailing, and financial services also added to the 0.5% rise in services. The producer price index for goods rose by a much more modest 0.1% in the latest report, a sharp deceleration from the 0.8% bounce recorded in the prior report. This divergence between the cost of goods and the margins earned suggest that worrying about inflation is much too premature, as global deflation pressure remain very evident in the data and has been a key drag on the Fed’s preferred measure of inflation, the personal consumption expenditure deflator.”
Brad McMillan, Chief Investment Officer, Commonwealth Financial Network:
"Economic recovery may be slowing. The economic news is also good, with the recovery continuing, but there are signs of slowing. The most recent initial jobless claims report shows slightly higher layoffs. The continuing unemployment claims have also risen, showing that fewer people have returned to work in the most recent weeks. Improvement in the jobs market has been a relative bright spot, but that trend may be slowing. Consumer spending has also weakened. In the past week, spending dropped from within 3.2 percent of the pre-pandemic level to 7.3 percent below, and consumer confidence has declined. Much of the decline in both confidence and spending appears to come from lower-income workers, where the jobs recovery has been particularly weak and who are most affected by the expiration of federal income support payments. This metric remains something to watch.”