U.S. stocks traded lower Thursday morning, threatening to snap a five-day streak that helped to drive the Dow and the S&P 500 out of correction territory, at least by one measure.
How did major benchmarks fare?
The Dow Jones Industrial Average
fell 97 points, or 0.4% to 23,902, while the S&P 500 index
slipped by 9 points, or 0.3% to 2,588. The Nasdaq Composite Index
receded 27 points, or 0.4%, to 6,947.
For the week, the Dow has risen 2%, the S&P 500 2.2%, while the Nasdaq has advanced 3.3%.
What’s driving the market?
Investors have taken solace in speeches by Federal Reserve officials in recent weeks, as they have continued to spread the message that the central bank will be cautious in its approach to raising interest rates this year.
Fed Chairman Jerome Powell reinforced that message Thursday during a during a discussion at the Economic Club of Washington stressing that the central bank will be “flexible” and “patient” on monetary policy as inflation is “under control.”
Earlier in the day, a reading of December inflation, the consumer-price index slipped 0.1% to mark the first decline in nine months, the Labor Department said on Friday. That matched the forecast of economists polled by MarketWatch. The increase in the cost of living over the past 12 months slowed to 1.9% from 2.2%, the first time it’s fallen below the key 2% mark since August 2017, but also matched expectations.
The report offers investors a measure of how quickly prices are rising—with higher inflation a potential driver of lower corporate profit margins and more aggressive Fed rate increases.
Investors will also be digesting incrementally good news on the U.S.-China trade front, after U.S. Treasury Secretary Steven Mnuchin told reporters Thursday night that Vice Premier Liu He, the most senior economic policy adviser to President Xi Jinping, would travel to Washington later in January to continue trade negotiations, talks that have been seen by markets as gaining momentum this week.
Meanwhile, the partial U.S. government shutdown entered its 21st day, tying the record for the longest in history. While markets have so far shrugged off the drama in Washington, hundreds of thousands of federal workers won’t receive paychecks this week, and economists warn that the economic effects of the shutdown could grow significant as the standoff drags on.
What are the analysts saying?
Brent Schutte, chief investment strategist at Northwestern Mutual Wealth Management, told MarketWatch that weakness in equities Friday morning should not shake confidence it what he sees as sustainable rally going forward.
“We’ve clawed back from the December downturn, which was disconnected from economic reality,” he said. “With inflation not rising convincingly above 2%, markets are right to think that the Fed will be their friend,” he said, adding that Friday’s subdued inflation reading will give the central bank even more reason to take the patient approach Chairman Powell has outlined in recent speeches.
“Stocks are loving that central bank policy appears to be in an ultra-dovish mode,” wrote Edward Moya, chief market strategist at Oanda, in a note. “Inflation is low and under control and the main catalyst for the Fed’s ability to be patient. If we see softer prints, we could see yields drop and stocks continue their rally.”
Which stocks are in focus?
Shares of Netflix Inc.
rose 3.8%, after the firm was upgraded to strong buy from outperform at Raymond James.
Chico’s FAS Inc.
stock advanced 4.1% Thursday, after the firm announced the closure of 250 stores, as part of an overhaul, with the aim of improving its online offering and customer service.
Activision Blizzard Inc.
fell 10.3%, after the firm announced Thursday evening that it was ceding rights to the “Destiny” franchise to Bungie Inc. Following the move, Benchmark cut its price target on the stock from $93 to $87, and KeyBanc Capital slashed its price target from $80 to $64.
Shares of General Motors Co.
rose 8.2% early Thursday, after the auto maker said it expects 2018 earnings and adjusted free cash flow to beat expectations and provided an upbeat 2019 outlook.
Yum Brands Inc.
stock is down 1.7%, after the KFC and Pizza Hut parent was downgraded from neutral to sell by Goldman Sachs.
Shares of Starbucks Corp.
fell 1.4%, also after Goldman Sachs downgraded the stock, to neutral from buy.
How did the benchmarks fare yesterday?
On Thursday, the Dow rose 122.80 points, or 0.5%, to 24,001.92, and the S&P 500 advanced 11.68 points, or 0.5%, to 2,596.64. The Nasdaq Composite Index added 28.99 points, or 0.4%, to 6,986.07.
Both the Dow and the S&P finished the day up more than 10% from their December lows, marking their exit from correction territory, or when an asset drops 10% from its recent peak.
How are other markets trading?
Markets in Asia rallied Friday, with Japan’s Nikkei
closing 1% higher, while Hong Kong’s Hang Seng Index
added 0.6%, and China’s Shanghai Composite
In Europe, stocks edged higher, with the Stoxx Europe 600
is lower Thursday, threatening to end its nine-day winning streak Gold prices
advanced 0.2%, while the U.S. dollar