Interest Rate Concerns Contribute To Extended Sell-Off On Wall Street

Extending the sell-off seen late in the previous session, stocks moved sharply lower over the course of the trading day on Thursday. The major averages all posted steep losses on the day, with the tech-heavy Nasdaq plunging to its lowest closing level in over three months.

The major averages saw further downside going into the close, ending the day just off their lows of the session. The Nasdaq plummeted 245.14 points or 1.8 percent to 13,223.98, the S&P 500 dove 72.20 points or 1.6 percent to 4,330.00 and the Dow tumbled 370.46 points or 1.1 percent to 34,070.42.

Concerns about the outlook for interest rates continued to weigh on Wall Street following the Federal Reserve’s monetary policy announcement on Wednesday.

While the Fed left interest rates unchanged as widely expected, the central bank forecast another rate hike before the end of the year as well as keeping rates at elevated levels for longer than previously anticipated.

“12 of 19 governors at this point currently favor one more interest rate increase in the next two meetings before the end of the year,” said Alex McGrath, Chief Investment officer for NorthEnd Private Wealth. “Additionally the dot plot for rate expectations in 2024 was higher than it had been in previous meetings signaling a hawkish outlook for rates next year, cementing their higher for longer stance.”

He added, “Heading into the fourth quarter with rate expectations remaining elevated, we are more than likely in for a choppy end of the year as the markets digest an outlook less favorable for the growth assets that have driven the market for 2023.”

The worries about interest rates contributed to a surge by treasury yields, with the yield on the benchmark ten-year note jumping to its highest level in almost sixteen years.

Adding to the concerns about interest rates, the Labor Department released a report this morning showing first-time claims for U.S. unemployment benefits unexpectedly fell to a seven-month low in the week ended September 16th.

The report said initial jobless claims dipped to 201,000, a decrease of 20,000 from the previous week’s revised level of 221,000.

Economists had expected jobless claims to inch up to 225,000 from the 220,000 originally reported for the previous week.

With the unexpected decrease, jobless claims fell to their lowest level since hitting 199,000 in the week ended January 28th.

However, Nancy Vanden Houten, Lead .S. Economist at Oxford Economics, said, “The claims data don’t change our call for the Fed to keep rates steady before embarking on a very gradual pace of rate cuts in mid-2024.”

“A sharp rise in unemployment and claims isn’t a prerequisite for the Fed to stop raising rates,” she added. “Fed Chair Powell yesterday noted that the labor market is coming into better balance without a rise in the unemployment rate.”

Sector News

Interest rate-sensitive commercial real estate stocks saw substantial weakness on the day, resulting in a 3.5 percent nosedive by the Dow Jones U.S. Real Estate Index. The index plunged to its lowest closing level in almost six months.

Considerable weakness was also visible among housing stocks, with the Philadelphia Housing Sector Index tumbling by 2.7 percent to a three-month closing low.

The weakness in the housing sector came after the National Association of Realtors released a report unexpectedly showing a continued decrease in existing home sales.

NAR said existing home sales fell by 0.7 percent to an annual rate of 4.04 million in August after tumbling by 2.2 percent to an annual rate of 4.07 million in July. Economists had expected existing home sales to rise to a rate of 4.10 million.

Retail stocks also saw significant weakness on the day, as reflected by the 2.6 percent slump by the Dow Jones U.S. Retail Index.

Networking, gold and brokerage stocks also showed notable moves to the downside amid broad based weakness on Wall Street.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved mostly lower during trading on Thursday. Japan’s Nikkei 225 Index dove by 1.4 percent, while China’s Shanghai Composite Index slid by 0.8 percent.

The major European markets also saw significant weakness on the day. While the French CAC 40 Index plunged by 1.6 percent, the German DAX Index tumbled by 1.3 percent and the U.K.’s FTSE 100 Index fell by 0.7 percent.

In the bond market, treasuries moved sharply lower amid concerns about the outlook for interest rates. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, spiked 13.1 basis points to a nearly sixteen-year closing high of 4.480 percent.

Looking Ahead

Following the slew of data released this morning, the U.S. economic calendar is relatively quiet on Friday, potentially leading to choppy trading.

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