The Dow Jones lost 234 points, or 0.5 per cent, and the Nasdaq composite sank 0.7 per cent from its record set the day before.
A report early in the morning said more US workers applied for unemployment benefits last week than expected. A separate update, meanwhile, showed that inflation at the wholesale level, before it reaches US consumers, was hotter last month than economists expected.
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Neither report points to imminent disaster, but they dilute one of the hopes that’s driven the S&P 500 to 57 all-time highs so far this year: Inflation is slowing enough to convince the Federal Reserve to keep cutting interest rates, while the economy is remaining solid enough to stay out of a recession.
Of the two reports, the weaker update on the job market may be the bigger deal for the market, according to Chris Larkin, managing director, trading and investing, at E-Trade from Morgan Stanley. A surge in egg prices may have been behind the worse-than-expected inflation numbers.
“One week doesn’t negate what has been a relatively steady stream of solid labor market data, but the Fed is primed to be sensitive to any signs of a softening jobs picture,” he said.
Traders are widely expecting the Fed will ease its main interest rate at its meeting next week. If they’re correct, it would be a third straight cut by the Fed after it began lowering rates in September from a two-decade high. It’s hoping to support a slowing job market after getting inflation nearly all the way down to its 2 per cent target.
Lower rates would give a boost to the economy and to prices for investments, but they could also provide more fuel for inflation.
A cut next week would have the Fed following other central banks, which lowered rates on Thursday. The European Central Bank cut rates by a quarter of a percentage point, as many investors expected, and the Swiss National Bank cut its policy rate by a steeper half of a percentage point.
Following its decision, Switzerland’s central bank pointed to uncertainty about how US President-elect Donald Trump’s victory will affect economic policies, as well as about where politics in Europe is heading.
Trump has talked up tariffs and other policies that could upend global trade. He rang the bell marking the start of trading at the New York Stock Exchange on Thursday to chants of “USA.”
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On Wall Street, Adobe fell 13.7 per cent and was one of the heaviest weights on the market despite reporting stronger profit for the latest quarter than analysts expected. The company gave forecasts for profit and revenue in its upcoming fiscal year that fell a bit shy of analysts’.
Warner Bros. Discovery soared 15.4 per cent after unveiling a new corporate structure that separates its streaming business and film studios from its traditional television business. CEO David Zaslav said the move “enhances our flexibility with potential future strategic opportunities,” raising speculation about a spinoff or sale.
Kroger rose 3.2 per cent after saying it would get back to buying back its own stock now that its attempt to merge with Albertsons is off. Kroger’s board approved a program to repurchase up to $US7.5 billion of its stock, replacing an existing $US1 billion ($1.6 billion) authorisation.
