The U.S. stock market showed a lackluster performance on Thursday, reflecting mixed economic reports and a relative calmness following this week’s significant swings on Wall Street.
In early trading, the S&P 500 edged 0.2% higher, rebounding slightly from a 1.4% decline after a previous 1% surge. The Dow Jones Industrial Average gained 96 points, or 0.3%, by 9:35 a.m. Eastern time, while the Nasdaq composite remained relatively unchanged.
TripAdvisor’s stock surged by 8.1% after reporting stronger-than-expected quarterly results. On the other hand, tech giant Cisco Systems, despite posting better-than-expected results, saw its stock drop by 2.7% after lowering its profit forecast for the full fiscal year.
The day’s economic reports presented a mixed picture. Retail sales in the U.S. weakened more than anticipated in January compared to December, indicating a significant decline in household spending. This development could alleviate some inflationary pressures but also raises concerns about economic growth.
In contrast, a separate report showed fewer Americans applied for unemployment benefits last week than forecasted, signaling a robust job market despite recent layoff announcements. Other reports painted a mixed but generally positive picture of the manufacturing sector.
The release of these economic data helped push Treasury yields lower. The 10-year Treasury yield fell to 4.19% from 4.27% late Wednesday, as concerns about potential stock market losses eased following the morning’s data releases.
Market sentiment regarding future Federal Reserve interest rate cuts has been shifting due to stronger-than-expected inflation, job market, and overall economic reports. Traders are now delaying their predictions for when the Fed will begin cutting rates, with expectations shifting from March to possibly May or June.
Despite the delay in rate cuts, the consensus remains that rate reductions will occur this year, albeit with changing timelines. The solid economic outlook should continue to support profit growth for companies, helping to prevent significant stock market declines.
However, one potential disruptor is the upcoming U.S. election. The Fed typically avoids making significant rate changes close to an election. If the Fed does not act by June, there’s a possibility it may maintain steady rates until late 2024 or early 2025.
Overall, the direction of Treasury yields will depend more on the extent of rate cuts by the Fed rather than the timing of the cuts, according to Bank of America strategists led by Mark Cabana.
In international markets, Japan’s Nikkei 225 rose 1.2% despite the country’s economy shrinking for a second consecutive quarter. The UK also reported a second consecutive quarterly economic contraction, with the FTSE 100 index in London edging up by 0.1%. European stocks showed slightly more gains overall.
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