Dow, S&P 500 struggle to hold gains after back-to-back Fed-inspired losses

Treasury Yields Mixed After Minutes, With Curve Steepening
April 7, 2022
U.S. stock index futures were pointing to a second day of gains
April 8, 2022

Dow, S&P 500 struggle to hold gains after back-to-back Fed-inspired losses

HP shares jump 16% after Warren Buffett’s Berkshire Hathaway reveals stake

U.S. stocks recovered from early losses Thursday afternoon, after the Nasdaq 100 posted its sharpest two day loss in nearly a month on Wednesday, as investors digested the Federal Reserve’s monetary tightening plans, while yields on longer dated Treasuries rose.

What’s happening
  • The Dow Jones Industrial Average DJIA, 0.23% rose 5 points, or less than 0.1%, to 34,500.
  • The S&P 500 SPX, 0.42% gained 5 points, or 0.1%, to 4,486.
  • The Nasdaq Composite COMP, 0.04% declined 40 points, or 0.3%, to 13,849.

On Wednesday, the Dow fell 145 points, or 0.4%, while the S&P 500 lost 1% and the Nasdaq Composite dropped 2.2%. The S&P 500 closed below its 200-day average and is down 6% on the year.

What’s driving markets

Stocks struggled for direction Thursday after minutes from the March Federal Open Market Committee meeting, released Wednesday, showed the central bank weighing a plan to reduce its bond holdings by $95 billion per month as it tries to stamp out surging inflation. The Fed’s caution initially hit technology and growth stocks in particular, as their valuations are more dependent on the level of interest rates.

“Investors continue to get spooked by the tough talk of the Fed,” said Peter Cardillo, chief market strategist at Spartan Capital Securities, by phone.

“Even though the market doesn’t like the tough talk, it is important because the Fed is behind the yield curve. So they need to basically make sure inflation doesn’t get out of hand.”

Rates analysts at Bank of America say the 10-year yield TMUBMUSD10Y, 2.666% could reach 3%, even though they see fair value in the 2.05% to 2.7% range. The yield was back on the rise Thursday, up about 4 basis point at 2.65%.

“It’s not surprising to see that growth names are leading the losses, given the well-known rate sensitivity of these megacap stocks, with the Nasdaq now almost 5% off recent highs,” said Michael Brown, head of market intelligence at Caxton. “While, near-term, I remain cautious on equities, I also think that these names are likely to outperform over the medium-term as economic activity slows and the market places a premium on growth.”

St. Louis Fed President James Bullard on Thursday dismissed talk of recession, saying that the U.S. expansion “is not ‘old’ and can continue for a long time.” Bullard has called for the Fed to raise interest rates swiftly to counter inflation, saying he wants to get the Fed’s benchmark interest rate above 3% this year.

See: Fed must ‘inflict more losses’ on stock-market investors to tame inflation, says former central banker

The U.S. Labor Department said first-time jobless claims dropped by 5,000 to 166,000 in week ended April 12, the lowest since 1968.

“Right now, the market is going through a bit of turbulence,” Cardillo said. “But once we start next week with the earnings season, I think there’s a slightly better tone to the market.”

SeeOil-price spikes on this scale have ‘always preceded recession’: Jeremy Grantham

Which companies are in focus?
  • Shares of HP Inc. HPQ, 14.97% jumped about 16% after Warren Buffett’s Berkshire Hathaway Inc. BRK.A, 0.64% BRKB, -0.10% disclosed that it had taken an 11% stake in the maker of personal computers.
  • After an extension of the federal student loan moratorium, SoFi Technologies Inc. SOFI, -7.90% trimmed its outlook for the full fiscal year Wednesday, with executives now assuming the moratorium will last at least through the rest of the year. Shares were down about 9%.
  • Shares of Levi Strauss & Co. LEVI, -1.29% fell 1.4% after the retailer late Wednesday reported quarterly earnings and sales that topped Wall Street forecasts.
  • Shares of ConAgra Brands Inc. CAG, 0.23% were up 0.3% after the food company delivered disappointing guidance.
  • Rite Aid Corp. RAD, -20.56% shares plunged about 22% after Deutsche Bank analyst George Hill cut his rating on the stock to sell from hold, slashing his price target to $1 from $16.
What other assets are doing
  • The ICE U.S. Dollar Index DXY, 0.18% rose 0.1%.
  • Bitcoin BTCUSD, -0.50% was flat above $43,500.
  • Oil futures gave up early gains, with the U.S. benchmark CL.1, 0.14% down 0.3% near $96 a barrel, while gold futures GC00, 0.67% rose 0.8% ending at $1,937.80 an ounce.
  • The Stoxx Europe 600 SXXP, -0.21% settled down 0.2%, while London’s FTSE 100 UKX, -0.47% lost 0.5%.
  • Stocks fell in Asia, with the Shanghai Composite SHCOMP, -1.42% ending 1.4% lower, while the Hang Seng Index HSI, -1.23% lost 1.2% in Hong Kong and Japan’s Nikkei 225 NIK, -1.69% declined 1.7%.

—Steven Goldstein contributed reporting