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Wall Street closes lower as Fed pound rate hike looms

  • Oil prices increase inflation problems after OPEC+ production cuts
  • US weekly jobless claims rise more than expected
  • Indices fall: Dow down 1.15%, S&P 1.02%, Nasdaq 0.68%

Oct 6 (Reuters) – Wall Street’s major indexes closed lower on Thursday as concerns rose ahead of closely watched monthly nonfarm payrolls on Friday that the Federal Reserve’s aggressive interest rate stance will lead to a recession.

Markets took brief comfort from data showing that weekly jobless claims rose by the most in four months last week, raising a glimmer of hope that the Fed could ease implementation since March with the fastest and highest rate jump in decades. read more

The stock market has been slow to acknowledge a consistent message from Fed officials that interest rates will go higher for an extended period of time until the pace of inflation is clearly slowing.

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Chicago Fed President Charles Evans was the latest to state the central bank’s outlook on Thursday, saying policymakers expect to deliver 125 basis points of rate hikes before the end of the year as inflation readings have been disappointing. read more

“The market has slowly gotten the Fed’s message,” said Jason Pride, chief investment officer of private wealth at Glenmede in Philadelphia.

“There is a likelihood that the Fed with further rate hikes will push the economy into a recession to bring down inflation,” Pride said. “We don’t think the markets have fully picked up on this.”

Pride is seeing a mild recession, but in the average recession there has been a 15% drop in earnings, suggesting the market could fall further. The S&P 500 has fallen 22% from its January 3 peak.

Average S&P decline in recession is 30%

Despite today’s decline, the three major indexes were poised to post a weekly gain after the sharp gains on Monday and Tuesday.

The labor market remains tight even as demand begins to cool with higher prices. On Friday, the September employment payrolls report will help investors gauge whether the Fed is changing its aggressive rate hike plans.

The money markets are pricing in an almost 86% chance of a fourth straight rate hike of 75 basis points when decision makers meet on 1-2. November.

To be clear, not everyone is predicting a hard landing.

Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., September 7, 2022. REUTERS/Brendan McDermid

Dave Sekera, chief U.S. market strategist at Morningstar Inc ( MORN.O ), said growth will remain weak for the foreseeable future and likely won’t begin to accelerate again until the second half of 2023, but he doesn’t see a sharp slowdown.

“We are not predicting a recession,” Sekera said. “Markets are looking for clarity on when they think economic activity will accelerate and make the sustained upturn.

“They are also looking for strong evidence that inflation will start to really come down, moving back towards the Fed’s 2% target,” he said.

Ten of the 11 major S&P 500 sectors fell, led by a 3.3% decline in real estate (.SPLRCU). Other indices also fell, including semiconductors (.SOX), small caps (.RUT) and the Dow transport (.DJT). Growth stocks (.IGX) fell 0.76%, while value (.IVX) fell 1.18%.

Energy (.SPNY) was the only gainer, rising 1.8%.

Oil prices rose to hold three-week highs after the Organization of the Petroleum Exporting Countries plus its allies agreed to cut production targets by 2 million barrels per day (bpd), the biggest cut since 2020. read more

The Dow Jones Industrial Average (.DJI) fell 346.93 points, or 1.15%, to 29,926.94, the S&P 500 (.SPX) lost 38.76 points, or 1.02%, to 3,744.52 and The Nasdaq Composite fell 3.75IC. 0.68% to 11,073.31.

Tesla Inc ( TSLA.O ) fell 1.1% as Apollo Global Management Inc ( APO.N ) and Sixth Street Partners, which had been looking to raise financing for Elon Musk’s $44 billion Twitter deal, are no longer in conversations with the billionaire. read more

Alphabet Inc ( GOOGL.O ) closed largely flat after the launch of Google’s new phones and first smartwatch.

Volume on US exchanges was 10.57 billion shares, compared to the 11.67 billion average for the full session over the past 20 trading days.

Declining issues outnumbered advancing ones on the NYSE by a ratio of 2.32 to 1; on the Nasdaq, a 1.42 to 1 ratio favored decliners.

The S&P 500 posted three new 52-week highs and 31 new lows; The Nasdaq Composite registered 46 new highs and 118 new lows.

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Reporting by Herbert Lash in New York Additional reporting by Ankika Biswas and Shreyashi Sanyal in Bengaluru Editing by Arun Koyyur and Matthew Lewis

Our standards: Thomson Reuters Trust Principles.

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