In New York, the stock market experienced a decline on Thursday, putting a dent in the recent rally on Wall Street. This came despite strong profit reports from major companies and positive signs from the resilient economy. The S&P 500 dropped 0.6 percent to 4,537.41, after reaching its highest level in nearly 16 months earlier in the day. The Dow Jones Industrial Average also went from a gain to a loss, falling 0.7 percent to 35,282.72. The Nasdaq composite fell 0.5 percent to 14,050.11.
Honeywell International, despite reporting stronger-than-expected profits for the spring, weighed heavily on the market. The company’s revenue fell short of analysts’ expectations, as did its forecast for earnings in the current quarter. This added to the downward pressure on Wall Street.
The stock market’s decline ended a 13-day winning streak for the Dow, which had been on the verge of tying a record set in 1897. The recent rally was driven by hopes that the Federal Reserve could successfully combat high inflation by raising interest rates without causing a recession. However, critics argue that the market’s rapid ascent may not be sustainable, and the consensus on a “soft landing” for the economy is far from certain.
Bryant VanCronkhite, managing director and senior portfolio manager at Allspring Global Investments, cautions against fully endorsing the belief that the Fed has conquered high inflation. He emphasizes the need for humility in predicting the long-term effects of ongoing events, such as the rapid rise in interest rates and the recovery from the pandemic’s disruptions to the labor force and supply chains.
While Thursday’s economic reports were mostly positive, VanCronkhite suggests that they could contribute to inflationary pressures. Strong data on the job market, for example, could lead to continued consumer spending and further price increases. This, in turn, may prompt the Federal Reserve to maintain higher interest rates than initially anticipated, thus prolonging the risk of a recession.
Bond yields rallied following the release of reports indicating that the overall economy performed better than expected. One report showed accelerated growth in the spring, surpassing economists’ forecasts. The report also indicated that inflation was not as high as anticipated from April through June. Additionally, another report revealed a decrease in workers applying for jobless benefits, highlighting the strength of the job market, while a third report indicated stronger-than-expected orders for durable goods.
On Wednesday, the Federal Reserve raised its federal funds rate to its highest level in over two decades as part of its efforts to curb inflation. However, Fed Chair Jerome Powell’s statement that future rate increases would depend on inflation and economic reports gave hope that the latest hike marked the end of the current cycle. Powell also mentioned that the Fed’s staff is no longer predicting a recession.
The 10-year Treasury yield rose to 4 percent from 3.87 percent, impacting rates for mortgages and other important loans. Meanwhile, the two-year Treasury yield, which responds more to expectations for the Fed, increased to 4.92 percent from 4.85 percent.
Despite the market decline, Meta Platforms, which owns Facebook, Instagram, and WhatsApp, reported stronger-than-expected profits and attracted additional active members. As a result, its stock rose 4.4 percent. McDonald’s also performed well, exceeding analysts’ profit forecasts and experiencing worldwide sales growth.
In Europe, stock indexes rose following the European Central Bank’s decision to raise interest rates, with the French CAC 40 increasing by 2.1 percent and Germany’s DAX by 1.7 percent. Most Asian stock indexes also saw gains, with Hong Kong’s Hang Seng leading with a 1.4 percent rally.
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Omprakash Tiwary is a business writer who delves into the intricacies of the corporate world. With a focus on finance and economic landscape. He offers readers valuable insights into market trends, entrepreneurship, and economic developments.
