U.S. stock indexes experienced a lackluster day of trading on Thursday, with the S&P 500 potentially heading towards a fifth consecutive loss. The S&P 500 was down 0.2% in afternoon trading, marking its longest losing streak since late October. The Dow Jones Industrial Average was slightly up, while the Nasdaq composite was 0.4% lower. Equifax and Las Vegas Sands were among the companies that saw significant losses, while Elevance Health and Genuine Parts saw gains in their stock prices.
The recent struggles in the stock market can be attributed to rising yields in the bond market, which have increased pressure on investors. The Federal Reserve’s reluctance to provide further interest rate cuts this year has also dampened market sentiment. However, reports released on Thursday indicated that the U.S. economy is performing better than expected. Fewer workers applied for unemployment benefits, manufacturing in the mid-Atlantic region accelerated sharply, and sales of previously owned homes were stronger than anticipated.
The strong economic data has led to higher expectations for the growth of the U.S. economy in the first quarter. However, the Fed officials have indicated that they may keep interest rates high for a while, given the current strength of the economy. This is a shift from earlier indications that the Fed could potentially cut interest rates. Traders are now forecasting only one or two rate cuts this year, compared to initial expectations for six or more cuts. The bond market also saw an increase in yields, with the 10-year Treasury yield rising to 4.64%.
The potential upside of a strong economy with high interest rates is the possibility of robust profit growth for companies. Companies will need to deliver strong earnings to justify the record-breaking run in stock prices since last autumn. Companies such as Alaska Air, Ally Financial, and Ibotta reported better-than-expected earnings, leading to positive movements in their stock prices. In international markets, indexes in Europe and Asia experienced modest gains, with South Korea’s Kospi leading the way with a 2% jump.
Overall, the stock market continues to face challenges due to rising bond yields and uncertainty surrounding interest rate cuts by the Federal Reserve. Strong economic data is providing some support to market sentiment, but investors remain cautious about the outlook for the rest of the year. Companies will need to demonstrate strong profit growth to sustain the current levels of stock prices. In the meantime, traders are closely monitoring developments in the bond market and any signs of a potential shift in Fed policy.
