A late-afternoon sell-off left equities slightly down on Thursday, as Wall Street finished its first losing month since February. The S&P 500 gave up an early gain and finished 0.2% down. The benchmark index fell 1.8% in August, although a four-day winning streak dating back to last week helped mitigate the severity of the monthly fall. The Dow Jones Industrial Average dropped 0.5%, while the Nasdaq Composite gained 0.1%.
Market concerns over the potential that the Fed may have to maintain interest rates higher for longer following news suggesting that the U.S. economy is impressively robust led to the market’s fall in August after a record year. This week, data on job openings, consumer confidence, and inflation fueled speculation on Wall Street that the Fed will keep interest rates unchanged at its next policy meeting in September. That helped limit the market’s losses for August. The S&P 500, which gained 19.5% in July, is now up 17.4% for the year, while the tech-heavy Nasdaq is up 34.1%. The Dow has gained 4.8%.
The government announced on Thursday that a key indicator of inflation carefully monitored by the Fed remained low in July. The most recent update for personal consumption and expenditures, or the PCE report, is the latest indication that price rises are slowing.
Since 2022, the central bank has rapidly hiked its main interest rate to the highest level since 2001. The objective has been to bring inflation back down to the Fed’s 2% target. In July, PCE was 3.3%, which was in line with analysts’ predictions. This is a decrease from 7% a year earlier.
The new inflation report comes after this week’s statistics on employment and consumer confidence, which reinforce predictions that the Fed may suspend interest rate rises. The central bank-maintained interest rates constant at its most recent meeting and is anticipated to do so again in September. According to CME’s FedWatch tool, investors expect rates to stay stable for the rest of 2023. The Fed has stated that it is willing to keep raising interest rates if necessary, but that it will base its next actions on the most recent economic statistics.
Bond rates dipped once further on Thursday. The 10-year Treasury yield fell to 4.10% from 4.11% late Wednesday. The yield on the 2-year Treasury note, which mirrors Fed predictions, fell to 4.85% from 4.88% late Wednesday.
This week, Wall Street will receive one more major economic report. The government will release August employment figures on Friday. The solid employment market, along with consumer spending, has so far managed to avert a recession that economists said would occur in 2023. However, by boosting wage and price rises, they made the Fed’s goal of managing inflation more difficult. The Fed is attempting to reduce interest rates without causing the economy to enter a recession. Despite the recent August drop, the chance of a recession, or at least a severe one, appears to be decreasing, which is driving market optimism in 2023.
Health-care companies and banks were among the market’s biggest drags. Elevance Health declined 3.8%, while UnitedHealth Group fell 3%. Gains in technology firms aided the S&P 500’s recovery. Broadcom gained 3.4%, while Intel gained 1.8%. Salesforce climbed 3% after increasing its earnings outlook for the year. CrowdStrike, a cloud-based security business, increased 9.3% after posting solid financial results.
Dollar General was one of several shops that fell after posting disappointing results and predictions. It fell 12.2% after lowering its full-year earnings outlook. The S&P 500 lost 7.21 points to 4,507.66 on Thursday. The Dow fell 168.33 points to 34,721.91, while the Nasdaq gained 15.66 points to 14,034.97.
European markets were generally down. Annual inflation in the country remained stable in August as food prices outpaced declining gasoline prices, but there was no word on whether the European Central Bank will suspend its record string of interest rate rises. Asian markets were volatile.
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