Key Takeaways
- US stock indexes closed sharply lower on Thursday, giving up early gains, with the S&P 500 hitting a 2.25-month low.
- Hawkish comments from Federal Reserve officials dampened expectations for further interest rate cuts, intensifying the stock sell-off.
- Despite robust forecasts from Nvidia and strong Q3 results from Walmart, megacap tech and chip stocks retreated significantly.
- Bitcoin plunged over 3% to a 7-month low, reflecting a broader downturn in the crypto market.
- Bond yields whipsawed, with 10-year T-notes recovering due to unexpected unemployment rate increases, which hinted at potential Fed rate cuts.
The S&P 500 Index closed down by 1.56% on Thursday, while the Dow Jones Industrials Index saw an 0.84% decline, and the Nasdaq 100 Index fell by 2.38%. December E-mini S&P futures dropped 1.56%, and December E-mini Nasdaq futures decreased by 2.46%.
US stock indexes initially rallied on Thursday but quickly sold off, with the S&P 500 reaching a 2.25-month low, the Dow Jones Industrials hitting a 5-week low, and the Nasdaq 100 marking a 2-month low. Major technology stocks and chip manufacturers, which had seen early gains, reversed course and pulled the overall market down. The selling pressure escalated following hawkish remarks from Federal Reserve officials, reducing hopes for additional rate cuts.
Market Dynamics and Federal Reserve Outlook
Stocks initially found support from Nvidia’s strong revenue forecast, which helped allay fears of a potential bubble in the artificial intelligence sector. Additionally, Walmart’s stock rose over 6% after its robust third-quarter results indicated sustained consumer spending. Bond yields also saw early fluctuations, moving lower after September nonfarm payrolls exceeded expectations. However, the unexpected rise in the September unemployment rate to a four-year high bolstered speculation that the Fed might still consider cutting interest rates at its upcoming FOMC meeting. The probability of a December 9-10 FOMC meeting rate cut increased to 35% from 25% the previous day.
Weekly US initial unemployment claims decreased by 8,000 to 220,000, outperforming expectations of 227,000 and suggesting a stronger labor market. Nonetheless, weekly continuing claims climbed to 1.974 million, the highest in four years, indicating that unemployed individuals are facing difficulties in securing new jobs. September nonfarm payrolls rose by 119,000, surpassing the anticipated 51,000, further signaling a robust labor market. Conversely, the September unemployment rate unexpectedly increased by 0.1% to 4.4%, a nearly four-year high, reflecting a weaker labor market than the unchanged expectation of 4.3%.
September average hourly earnings in the US remained at 3.8% year-over-year, stronger than the expected 3.7% year-over-year. The US November Philadelphia Fed business outlook survey improved by 11.1 points to -1.7, though it was weaker than the anticipated +1.0. US October existing home sales rose 1.2% month-over-month to an eight-month high of 4.10 million, exceeding expectations of 4.08 million.
đź“Ť Hawkish comments from several Fed officials contributed to the bearish sentiment in the stock market. Cleveland Fed President Beth Hammack warned that lowering interest rates to support the labor market could prolong elevated inflation and encourage financial market risk-taking. Chicago Fed President Austan Goolsbee expressed unease about front-loading too many rate cuts, citing stalled and potentially rising inflation. Fed Governor Michael Barr also voiced concern over inflation remaining around 3% and emphasized the need for caution regarding further rate cuts while inflation exceeds the 2% target.
Global Market Performance and Interest Rate Environment
The price of Bitcoin tumbled over 3% on Thursday, reaching a seven-month low, as the cryptocurrency market continued a six-week downtrend, with prices falling over 31% from last month’s record high. The upcoming week’s US economic calendar is heavy, with a flood of delayed economic reports expected, including real earnings, S&P US manufacturing and services PMI reports, the University of Michigan’s US consumer sentiment index, and the Kansas City Fed’s services activity report. The Bureau of Labor Statistics announced that the October employment report would not be published separately but would be integrated into the November report on December 16. Other delayed US economic reports are also anticipated but remain unscheduled.
Markets are currently assigning a 35% probability of another 25 basis point rate cut at the next FOMC meeting scheduled for December 9-10. The third-quarter corporate earnings season is nearing its conclusion, with 460 out of 500 S&P companies having released their results. According to Bloomberg Intelligence, 82% of reporting S&P 500 companies surpassed forecasts, on track for the best quarter since 2021. Third-quarter earnings increased by 14.6%, more than double the projected 7.2% year-over-year growth.
Overseas stock markets showed mixed performance on Thursday. The Euro Stoxx 50 closed up 0.50%. China’s Shanghai Composite ended down 0.40%, while Japan’s Nikkei Stock 225 surged sharply by 2.65%.
Bond Market Activity
December 10-year T-notes closed up by six ticks on Thursday, with the 10-year T-note yield falling 3.3 basis points to 4.104%. T-note prices rebounded from a two-week low after September nonfarm payrolls exceeded expectations, but an unexpected increase in the September unemployment rate to a near four-year high fueled speculation of potential Fed rate cuts at the upcoming FOMC meeting. T-notes also received support from easing inflation expectations, as the 10-year breakeven inflation rate dropped to a 6.5-month low of 2.250%. Furthermore, the sharp sell-off in stocks increased demand for T-notes as a safe-haven asset.
Gains in T-notes were limited by stronger-than-expected October existing home sales, which reached an eight-month high, and by several Fed members signaling opposition to further interest rate cuts. European government bond yields were mixed on Thursday. The 10-year German bund yield rose to a six-week high of 2.742% and finished up 0.5 basis points at 2.716%. The 10-year UK gilt yield fell from a five-week high of 4.619% and finished down 1.6 basis points at 4.586%.
The Eurozone November consumer confidence index remained unchanged at -14.2, weaker than expectations of an increase to -14.0. German October PPI fell 1.8% year-over-year, weaker than the anticipated 1.7% year-over-year decline. ECB Governing Council member Makhlouf stated that Eurozone interest rates are in a good place and that he would need to see pretty compelling evidence to move. Swaps are currently factoring in a 2% chance of a 25 basis point rate cut by the ECB at its next policy meeting on December 18.
US Stock Movers: Highs and Lows
Nvidia closed down more than 3%, leading the Magnificent Seven technology stocks lower, despite reporting third-quarter revenue of $57.01 billion, exceeding the $55.19 billion consensus, and forecasting fourth-quarter revenue of $65 billion (plus or minus 2%), stronger than the $62 billion consensus. Tesla and Amazon.com also closed down more than 2%. Alphabet and Microsoft each declined more than 1%, while Apple fell 0.86% and Meta Platforms dropped 0.19%.
Semiconductor and AI-infrastructure stocks reversed early gains on Thursday, contributing to the broader market downturn. Micron Technology fell more than 10%, leading the Nasdaq 100 losers. Advanced Micro Devices dropped over 7%, and Applied Materials and Lam Research declined more than 6%. Marvell Technology, ASML Holding NV, and KLA Corp each fell over 5%, while Microchip Technology, NXP Semiconductors NV, ARM Holdings Plc, Intel, and Qualcomm all closed down more than 3%.
Cryptocurrency-exposed stocks retreated after Bitcoin’s price fell over 3% to a seven-month low. Galaxy Digital Holdings closed down more than 9%, and MARA Holdings fell over 8%. Coinbase Global saw a decline of more than 7%, Strategy dropped over 5%, and Riot Platforms decreased by more than 4%.
Bath & Body Works Inc. closed down over 24% after reporting third-quarter net sales of $1.59 billion, below the $1.63 billion consensus, and cutting its full-year EPS estimate to $2.83 from a previous range of $3.28-$3.53, significantly below the $3.44 consensus. Jacobs Solutions fell more than 10%, leading the S&P 500 losers, after reporting third-quarter revenue of $3.15 billion, which was below the $3.16 billion consensus.
Datadog closed down more than 9% following analysts’ concerns that Palo Alto Networks’ acquisition of Chronosphere poses a competitive risk for the company. Palo Alto Networks itself saw a decline of more than 7% after announcing its acquisition of Chronosphere Inc. for $3.35 billion.
PACS Group closed up more than 55% after announcing the completion of its restatements and audit committee investigation. The company also reported strong third-quarter revenue of $1.34 billion, a 31% increase year-over-year. Walmart rose more than 6%, leading gainers in the S&P 500 and Dow Jones Industrials, after raising its 2026 net sales forecast at constant currencies to +4.8% to +5.1% from a previous forecast of +3.75% to 4.75%.
Regeneron Pharmaceuticals closed up more than 4%, leading gainers in the S&P 500 and Nasdaq 100, following FDA approval of its EYLEA HD, an injectable drug for macular edema patients. Solventum rose more than 2% after acquiring Acera Surgical for $725 million in cash and announcing a $1 billion share buyback program. Nasdaq Inc. closed up more than 1% after Morgan Stanley upgraded its stock to overweight from equal weight with a price target of $110. Jack Henry & Associates also increased by more than 1% after Raymond James double-upgraded the stock to strong buy from market perform, setting a price target of $198.
Expert Summary
Thursday’s markets experienced a sharp downturn, primarily driven by hawkish comments from Federal Reserve officials that dampened optimism for future rate cuts. While some early positive indicators from robust earnings reports provided temporary relief, major technology and semiconductor stocks ultimately led the decline.
The bond market saw a mixed reaction, with T-notes finding some support amid shifting expectations for Fed policy, even as the cryptocurrency market faced a significant retreat. Investors are now closely watching economic reports and awaiting further clarity on the Federal Reserve’s stance and its implications for market stability.
