Market Pulls Back After Strong Rally
U.S. stocks edged lower on Thursday, giving up some gains from the previous session as investors analyzed corporate earnings reports and economic data to gauge the likelihood of Federal Reserve interest rate cuts.
Despite a benign inflation report and strong bank earnings, stocks struggled for direction, swaying between modest gains and losses throughout the session. Economic data showed resilient consumer spending and a strong labor market, which could give the Fed room to delay aggressive rate cuts this year.
Rick Pitcairn, chief global strategist at Pitcairn, commented:
“The market breathed a pretty good sigh of relief yesterday. Now January’s undecided, but at least we’re on better footing to assess earnings and economic data.”
Key Index Movements
At the market close:
- The Dow Jones Industrial Average fell 68.42 points (-0.16%) to 43,153.13.
- The S&P 500 declined 12.57 points (-0.21%) to 5,937.34.
- The Nasdaq Composite dropped 172.94 points (-0.89%) to 19,338.29.
Bank Earnings in Focus
The financial sector provided a bright spot, with strong earnings from major banks:
- Morgan Stanley (MS.N) surged 4.03% after reporting strong Q4 earnings, fueled by a wave of dealmaking.
- Bank of America (BAC.N) fell 0.98%, despite predicting higher interest income in 2025.
Pitcairn added:
“The bank earnings have been strong, and those are bellwether earnings. Investors are encouraged by their outlook.”
Fed Rate Cuts: Sooner or Later?
Investor focus remains on the Federal Reserve’s rate cut timeline:
- Fed Governor Christopher Waller suggested the central bank may cut rates sooner and faster than expected as inflation continues to ease.
- Treasury yields fell, with the 10-year yield dropping 3.8 basis points to 4.615%.
- Futures markets now show a greater chance of a 25 basis point rate cut in May, according to the CME FedWatch Tool.
Tariff and Policy Uncertainty Under Trump
Concerns linger over President-elect Donald Trump’s trade policies, with potential tariff increases that could fuel inflation and impact corporate earnings.
Meanwhile, Trump’s Treasury Secretary pick, Scott Bessent, outlined his policy stance:
- The U.S. dollar should remain the world’s reserve currency.
- The Federal Reserve should remain independent.
- The administration is ready to impose tougher sanctions on Russia’s oil sector.
- He warned of an “economic calamity” if Trump’s 2017 tax cuts expire at the end of 2025.
Tech Sector Weakness Drags Nasdaq Lower
The Nasdaq suffered the biggest losses, weighed down by a drop in major tech stocks:
- Apple (AAPL.O) sank 4.04%, following a report that it was overtaken by Vivo and Huawei as China’s biggest smartphone seller in 2024, according to Canalys.
- UnitedHealth (UNH.N) also tumbled, dragging the Dow lower after reporting weaker-than-expected Q4 revenue.
Market Breadth and Trading Volume
- Advancing issues outnumbered decliners by a 1.81-to-1 ratio on the NYSE, and 1.07-to-1 on the Nasdaq.
- The S&P 500 posted 21 new 52-week highs and 9 new lows.
- The Nasdaq recorded 58 new highs and 101 new lows.
- Trading volume on U.S. exchanges was 14.31 billion shares, below the 15.75 billion average of the last 20 trading days.
Looking Ahead
Despite Thursday’s pullback, the S&P 500 remains on track for a weekly gain, after falling in four of the past five weeks.
Investors will closely watch:
- Upcoming corporate earnings reports.
- Further inflation data.
- The Federal Reserve’s policy signals.
- Trump’s economic agenda, with his inauguration set for Monday.