*The Dow Jones Industrial Average DJIA was down 96.5 points, or 0.3%, at 34,072 after rising more than 600 points at its session high in early activity.*
On Wednesday, stocks gave up gains during Powell’s news conference to end mostly lower, with the Dow falling 0.4% and the S&P 500 shedding 0.2%, while the Nasdaq Composite eked out a tiny gain.
*The three major averages are solidly in negative territory this month, with the Nasdaq down more than 17% from its intraday high.*
What’s driving markets
*The U.S. economy sped up toward the end of 2021 before a late omicron surge, growing at an annual rate of 6.9% in the fourth quarter, its fastest pace in nearly four decades, as consumers spent more and businesses stocked back up. Economists polled by The Wall Street Journal had forecast gross domestic product to rise by 5.5% in the fourth quarter after a slower 2.3% annualized pace in the third quarter.*
*While strong economic data could stoke expectations the Fed will be more aggressive in tightening policy, economists noted that inventory gains were a key driver, without which the economy would have expanded at just a 1.9% pace. Moreover, rising inventories could be read as a sign that supply-chain bottlenecks are easing, which would ease inflationary pressures.*
*The silver lining in today’s report is that the supply side of the economy is starting to catch up to demand, as evidenced by the large inventory build in Q4. Although inventory levels are still low, they have clearly inflected, which should begin to take pressure off inflation fairly soon.*
Investors were also continuing to wrestle with the outlook for interest rates and other aspects of monetary policy after the Fed concluded its first policy meeting of the year on Wednesday. While the statement from the Federal Open Market Committee didn’t surprise investors, the tone of Powell’s comments in his subsequent news conference did.
The central bank chief didn’t reject the notion that the Fed could hike at each of its meetings this year, and talked of the need to be “nimble.” He also said there was “quite a bit of room to raise rates without hurting jobs.”
*Fed-funds futures on Thursday showed that the chances of the Federal Reserve delivering five 25-basis-point rate hikes by year-end had risen to nearly 33% from 22% Tuesday.*
Powell also refused to rule out the prospect of half a percentage point, rather than quarter-point, increases in rates over the course of the hiking cycle..
The yield on the 2-year Treasury at 1.036% five minutes before the Fed decision, was at 1.175% Thursday.
*Powell’s comment that his core PCE inflation forecast had increased by about 20 basis points since December equates to a roughly 30 basis point increase in projected fed-funds rate.*
*He said fed-funds futures for the end of 2022 are up a bit more than that, which could mean that the yields could reverse in the next few days.*
*In other U.S. data, orders for durable goods fell a larger-than-expected 0.9% in December, while initial claims for U.S. unemployment benefits fell by 30,000 last week to 260,000, signaling that disruptions in the labor market tied to omicron are starting to fade.*
*Pending home sales dropped 3.8% in December, according to the monthly index released by the National Association of Realtors.*
Investors were also reacting to a deluge of earnings, while Apple Inc. AAPL was due to deliver results after the closing bell.
*Geopolitical tensions simmered, as Russia continues to build up troops along the Ukrainian border and diplomats scramble to avoid conflict in the region.*
*Fourth-quarter reporting season has hit full stride, with 145 of the companies in the S&P 500 having reported. Of those, 79% have delivered consensus-beating results, according to Refinitiv data. Analysts now see, on aggregate, year-on-year fourth-quarter earnings growth of 24.2% for the S&P 500, per Refinitiv.*
By: via @AlliesFin Serve Stock Market
