Disney’s slump weighs on Dow, but tech sector leads broader market higher after inflation-fueled dip

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MARKET SNAPSHOT

U.S. stocks traded mostly higher Thursday, led by technology shares, which took the market down in the previous session after inflation data sent Treasury yields soaring.

How are stock-index futures trading?

  • The Dow Jones Industrial Average fell 78.94 points, or 0.2%, to 36,001.
  • The S&P 500 was up 7.44 points, or 0.2%, at 4,654.15.
  • The Nasdaq Composite gained 115.43 points, or 0.7%, to trade at 15,738.14.

On Wednesday, the Dow Jones Industrial Average fell 240 points, or 0.7%, while the S&P 500 fell 0.8% and the Nasdaq Composite slumped 1.7%.

What’s driving the market?

Stocks looked set stage a modest recovery on Thursday after Wednesday’s tumble was sparked by October consumer prices that surged 0.9%, well above forecast, and annual inflation climbed 6.2%, a more-than-three-decade high. The data ignited fears the Federal Reserve may have to act faster and more aggressively to rein in inflation, with investors fleeing into gold, the dollar and cryptocurrencies.

Hardest hit was the Nasdaq Composite, which saw its worst session since Oct. 4 as its technology and growth-geared stocks are viewed as more sensitive to higher interest rates. Investors were also dealing with a poorly received 30-year government bond auction.

U.S. bond markets are closed for the Veterans Day holiday, but Wednesday saw the 10-year and 30-year Treasury note yields surge. Gold prices continued to push higher, after the biggest gains since mid-June on Thursday, while the dollar also rose.

Major stock indexes remain near all-time highs after a third-quarter earnings season that saw companies preserve profit margins in the face of rising input costs. Rising inflation pressures are blamed in part on supply bottlenecks exacerbated by surging demand for goods following the pandemic-induced global economic shutdown.

A key question looms over consumers’ ability to keep spending in the face of rising prices for energy and food, said Keith Buchanan, portfolio manager at Globalt, in a phone interview.

“When we get to the week after Christmas and look back at the holiday season, the trends we saw will speak to what we can expect going forward for a big part of our economy,” Buchanan said.

The rise in bond yields on Wednesday marked a bounce from a sharp two-week decline that wasn’t based on fundamentals and was, therefore, unlikely to last, said Tom Essaye, founder of Sevens Report Research, in a note.

“During that period, tech rallied and led markets higher, and we’re seeing both trades now unwind. And given tech’s large weighting, that will be a headwind on the S&P 500,” he said.

“But unless the Fed starts strongly hinting at an accelerated taper or a much- sooner-than-expected rate hike, we do not see yesterday’s hot CPI or rise in yields as a reason to get more defensive,” he said, arguing it was instead reminder of the dominant trends in the market: above-normal inflation and rising yields.

See: Hot inflation undercuts one of the main arguments against stocks, strategist says

A sharp fall for shares of Walt Disney Co. was seen holding back the Dow on Thursday. Shares of the entertainment conglomerate were down 7.6% after it disappointed on theme park revenue and subscriber numbers for its Disney+ streaming service.

One lift for sentiment may have come from China’s property sector. “Chinese equities are up 2% today on the news that the battled real-estate developer Evergrande managed to pay overdue interest on three bonds worth $148 million,” said Saxo Bank’s chief investment officer, Steen Jakobsen, who noted that was also aiding sentiment for U.S. equity futures.

A softer stance from Chinese regulatory officials on the sector also helped rally those stocks, said Marios Hadjikyriacos, senior investment analyst at XM, in a note to clients. “Beijing is apparently prepared to relax the rules around how much leverage property developers can take on, allowing distressed companies some breathing room,” he said.

Read: China’s Evergrande once again sidesteps default, while sector rallies on signs of Beijing ease

What companies are in focus?

How are other assets trading?

  • The ICE U.S. Dollar Index   a measure of the currency against a basket of six major rivals, rose 0.2% after hitting a 15-month high on Wednesday.
  • The U.S. benchmark crude contract  rose 0.6% to $81.86 a barrel. Gold futures  climbed 0.9%, to $1,865 an ounce.
  • The Stoxx Europe 600  rose 0.3%, while London’s FTSE 100  gained 0.7%.
  • Hong Kong’s Hang Seng Index rose 1% and China’s CSI 300 Index rose 1.6%, while Japan’s Nikkei 225  gained 0.6%.

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