U.S. stocks finished Thursday with losses, but were well off the session lows, as investors digested Federal Reserve Chairman Jerome Powell’s dour economic outlook along with lackluster U.S. economic data.
How did equity benchmarks perform?
The Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA +1.85% closed 130.40 points, or 0.4%, lower at 27,901.98, after touching a low of 27,647.93. The S&P 500 index /zigman2/quotes/210599714/realtime SPX +1.95% fell 28.48 points to end at 3,357.01, a decline of 0.8%, following a momentary dip below its 50-day moving average at around 3,339. The Nasdaq Composite Index /zigman2/quotes/210598365/realtime COMP +1.55% retreated 140.19 points, or 1.3%, to 10,910.28.
On Wednesday, the Dow added 36.78 points, or 0.1%, to finish at 28,032.38, while the S&P 500 index shed 15.71 points, or 0.5%, closing at 3,385.49. The Nasdaq Composite Index fell 139.85 points, or 1.3%. The Russell 2000 index /zigman2/quotes/210598147/delayed RUT +2.11% of small-capitalization companies, rose 14.18 points, or 0.9%, to close at 1,552.33.
What drove the market?
The Fed’s warning Wednesday about a slow economic recovery that may need additional fiscal help, along with its expectation that near-zero interest rates will remain in force for a minimum of three years, created some uncertainty for investors hoping for further gains.
“We’re at a point where we’re wondering what’s going to drive the next leg up, without an ongoing flow of positive developments,” said Yung-yu Ma, chief investment strategist at BMO Wealth Management, in an interview.
A day after the Fed released its most recent policy update, investors said the U.S. central bank Chairman Jerome Powell may have unsettled the stock market by emphasizing the challenges facing the U.S. economy due to the pandemic.
The Fed’s “dot plot” showed policymakers expect interest rates to stay near zero until at least 2023, despite the run-up in equity values this year, as the U.S. deals with millions of people who still are unemployed.
However, some analysts view the overall tone of the Fed’s Wednesday statement as a positive for the market’s future prospects.
“It is proof the Fed reaction function has changed. And it is bull fuel for the longer run,” wrote Evercore ISI analysts Krishna Guha and Ernie Tedeschi in a note.
On U.S. fiscal policy, the prospects for another coronavirus aid package remain confused after news reports said Senate Republicans were unmoved by Trump’s call for more spending.
Market participants also watched a reading of the health of the U.S. labor market. Weekly initial jobless benefit claims showed 860,000 Americans filed for unemployment benefits, lower than the estimated 870,000, with continuing claims at 12.63 million, but still reflecting very elevated unemployment levels.
Separately, the Philadelphia Fed manufacturing index fell to 15 in September from 17.2 in prior month, suggesting a slowing pace of the recovery from the COVID-19 pandemic.
In other U.S. economic reports, U.S. home builders started construction on homes at a seasonally adjusted annual rate of 1.42 million in August, representing a 5% decrease from the previous month, but a 3% uptick from a year ago, the U.S. Census Bureau reported Thursday.