Friday, September 22

Nasdaq rises as yields slide, S&P 500 is flat

The Nasdaq Composite rose on Thursday while the S&P 500 dipped slightly, as bond yields slid and Wall Street continued to weigh recession risks.

The Dow Jones Industrial Average fell 89 points, or 0.3%. The S&P 500 was little changed, while the tech-heavy Nasdaq Composite rose 0.6%.

The major averages came into Thursday’s session posting strong gains for the week. The Dow and S&P 500 gained 2%, and the Nasdaq is up about 3% in that time.

To be sure, stocks closed slightly lower on Wednesday, giving up gains from earlier in the day, as investors weighed the likelihood of a recession.

“The bounce officer would certainly be suggestive of any kind of temporary reversal that comes along with very oversold conditions,” said Todd Jones, chief investment at Gratus Capital.

“For us, to think that this would be a more sustained move, we’d have to certainly see an improvement not only in some of the economic data, but I think more specifically, an improvement in inflation.”

Homebuilder stocks led gains in the S&P 500, as the Home Construction ETF (ITB) gained 2.6% on Thursday and 4.6% this week. Shares of Lennar and DR Horton are both up more than 3%.

A peek into the broader market index showed more defensive stocks such as consumer staples, utilities, real estate and health care stocks drove outperformance, with each sector up 1%.

Consumer staples stocks such as Clorox were up 4%. Shares of Costco and Kellogg each gained more than 2%.

Meanwhile, the yield on the 10-year Treasury note on Thursday dipped to its lowest level in roughly two weeks, or below 3.1%. Yields move inversely to prices.

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Federal Reserve Chair Jerome Powell spoke on monetary policy with congressional lawmakers for a second day Thursday. On Wednesday, Powell said the central bank is “strongly committed” to bringing down inflation. He also noted that a recession is a “possibility,” a fear that has continued to weigh on Wall Street.

“Definitively, we are going into a recession. How severe that recession is yet to be seen,” said Nick Giacoumakis, president of NEIRG Wealth Management.

“It depends on so many factors that I don’t think really anybody can pinpoint whether it’s going to be a really, really deep, hard recession or it’s going to be a hard landing in a more mild recession.”

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UBS is the latest investment bank this week to raise its odds of a recession to 69%, citing lackluster data last week in housing, industrial production and capital goods.

“We are now watching out for any further negative follow-through or whether we simply hit a local peak and some growth momentum in the hard data resumes,” UBS said in a Thursday note.

Citigroup increased its odds of a recession to 50%, citing a slide in consumer demand that could make it more difficult for the Federal Reserve to achieve a soft landing.

Goldman Sachs said the probability of a downturn is “higher and more front-loaded” than it was previously. In a Monday note, the firm raised its bet of a US recession to 30%, up from 15%, over the next year.

On the other hand, a top strategist at JPMorgan on Thursday said he believes the US economy will dodge a recession altogether, with the stock market making back any losses in the back half of the year.

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On Thursday, the Labor Department said US weekly jobless claims fell 2,000 to a seasonally adjusted 229,000 for the week ended June 18, though the labor market remains tight.

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