Dow heads for 3rd straight drop even as jobless claims fall to pre-pandemic low

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MARKET SNAPSHOT

U.S. stock losses accelerated late-morning Thursday, with the main benchmarks on pace to slump for a third session, even as the latest economic data pointed to improvement as the country emerges from the COVID pandemic.

Improving economic data has prompted a sharp rise in U.S. Treasury yields in the past couple of months, prompting end-of-quarter fund rebalancing out of stocks and into bonds and yields have drifted lower this week.

How are stock benchmarks performing?

  • The Dow Jones Industrial Average was down 316 points, or 1%, at around 32,094.
  • The S&P 500 traded 34 points lower to reach 3,855, a fall of 0.9%.
  • The Nasdaq Composite Index reached 12,792, down 169 points for a 1.3% slump, wiping out its year-to-date gains.

On Wednesday, the Dow closed 3 points lower, virtually unchanged at 32,420.06, the S&P 500 fell 21.38 points, or 0.6%, ending at 3,889.14, while the Nasdaq Composite Index shed 265.81 points to finish at 12,961.89, a decline of 2% and the small-capitalization Russell 2000 index shed 51.42 points, or 2.4%, ending at 2,134.27.

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What’s driving the market?

Stock indexes took a leg lower even as a report on weekly first-time jobless claims hit the lowest level in over a year and a reading on fourth-quarter gross domestic product was raised to 4.3%, beating consensus estimates of 4.1%.

On the jobs front, the number of people seeking unemployment benefits for the week ended March 20 totaled 684,000, marking the first time the number has been below 700,000 since March, when the public-health crisis took a significant hold of the economy. Economists surveyed by Dow Jones had expected 735,000 applications from 770,000 in the period before.

However, investors may be reading the positive results as suggesting that the economy may indeed run hot.

“In reality, a return to normal could already be priced in and when you consider that half of the Fed’s mandate is to support job growth, the signs of strength from today’s jobless claims read may actually have a perverse effect on the broader market,” wrote Mike Loewengart, managing director investment strategy at E-Trade Financial, in emailed remarks.

On Thursday, Fed Chairman Jerome Powell said that the rebound from COVID has taken shape faster than policy makers had expected but emphasized that the central bank would reduce accommodative measures only gradually.

“We will very gradually over time and with great transparency, when the economy has all but fully recovered, we will be pulling back the support that we provided during emergency times,” Powell told NPR, a day after his second day of congressional testimony to explain the health of the economy in the aftermath of the COVID pandemic.

“Investors also continue to mull over recent comments from central bankers about when emergency stimulus may be scaled back with the Bank of Canada having recently hinted at potentially sooner and Fed Chair Powell recently hinting at likely not for a while yet,” wrote Colin Cieszynski, chief market strategist at SIA Wealth Management.

The choppy trade in stock markets this week has been partly attributed to quarter-end rebalancing and a rotation in and out of sectors that are expected to perform better when the economy stages a more pronounced recovery from the COVID-19 pandemic.

However, few strategies have proven successful in recent trades, with growth stocks and many value-oriented names getting equally hammered in recent trading action.

The moves have come even as bond yields have slipped in the past week on growing concerns about extended COVID lockdowns in Europe, while the rise in yields so far this year is expected to lead to substantial selling of stocks and buying of bonds as funds rebalance, Sphia Salim, European rates strategist at Bank of America, was quoted as saying in the Financial Times. Some $88 billion is slated to be shifted from equities to bonds, BofA estimates.

Long-dated Treasury bond yields this week have fallen significantly though, with the 10-year benchmark note yielding around 1.60%, compared with 1.729% at the end of last week.

Powell on Wednesday to the Senate that he isn’t concerned about the recent rise in long-term bond yields.

Which stocks are in focus?

  • SunPower Corp. SPWR said Chairman and Chief Executive Tom Werner will retire from the company
  • Chipotle Mexican Grill Inc. CMG said Thursday that it has invested in Nuro, an autonomous delivery company. 
  • Darden Restaurants Inc. DRI shares rose in Thursday premarket trading after the Olive Garden parent reported fiscal third-quarter earnings and sales that beat the Street.
  • Shares of United Airlines Holdings Inc. UAL rose in premarket trading Thursday, after the air carrier announced plans to resume more than 20 domestic flights, and to fly to Latin America more than 100% of its pre-pandemic schedule.
  • AstraZeneca revised the efficacy rate from the recent clinical trial on its coronavirus vaccine down slightly to 76% from 79%.

How are other assets faring?

  • The yield on the 10-year U.S. Treasury note TMUBMUSD10Y,  was about 2 basis points lower at 1.593%, compared with 1.729% to end last week. Yields and bond prices move in opposite directions.
  • The ICE U.S. Dollar Index DXY,  a measure of the currency against a basket of six major rivals, rose 0.1% at 92.61.
  • Oil futures retreated  3.3%, even as the cargo ship mishap in the Suez Canal looked set to linger for days, with the U.S. benchmark CL.1 off $2.02 to trade at $59.19 a barrel on the New York Mercantile Exchange.
  • Gold futures were higher. The April contract GCJ21 rose 0.4%, to reach $1,740.40 an ounce.
  • In Europe, the Stoxx 600 index SXXP  fell 0.7%, while London’s FTSE 100 UKX traded 1.1% lower
  • In Asia, the Shanghai Composite SHCOMP  slipped 0.1%, Hong Kong’s Hang Seng Index HSI edged 0.1% lower and Japan’s Nikkei 225 NIK gained 1.1%.
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