Market Snapshot: Dow Jones down 130 points as ‘frantic’ November rally takes a breather

U.S. stocks were trading lower Thursday afternoon as the November rally that had carried major indexes to their highest level in two months took a breather.

How stocks are trading

  • The Dow Jones Industrial Average
    shed 99 points, or 0.3%, to 34,895.

  • The S&P 500
    was flipping between small gains and losses near 4,499.

  • Nasdaq Composite
    was down 5 points, or less than 0.1%, at 14,099, after briefly turning positive.

The S&P 500 finished Wednesday at its highest since Sept. 14.

What’s driving markets

Investors were taking breather on Thursday following a rally that has carried the Nasdaq nearly 10% higher since the beginning of November, allowing the tech-heavy index to exit correction territory and the S&P 500 to near an exit.

The S&P 500 would officially exit a correction if it closes at 4,529.111 or higher, which would make a rebound of at least 10% from its recent low.

Since the start of the month, a broad rally has seen unloved corners of the market, including the small-cap Russell 2000 index,
surge higher on hopes that the Federal Reserve could cut interest rates as soon as March.

Wall Street veteran JJ Kinahan, chief executive of IG North America, which owns Tastytrade, said the market was due for a down day after the S&P 500 rose in 11 of the past 13 sessions through Wednesday.

“Everyone’s taking a breath from the almost frantic buying pace we’ve seen over the past week,” he said in a phone interview with MarketWatch.

Mark Newton, head of technical strategy at Fundstrat, cheered a wider swath of shares joining the rally this month, with recent gains not powered by big tech stocks alone. He sees potential for improvement in market breadth to extend.

But Newton also added a caveat to his enthusiasm, warning that stocks were starting to look overbought based on some measures. “The short-term risk/reward for U.S. Equities won’t be as positive following any further rally into next week,” he said in emailed commentary.

Recently, signs of cooling inflation, rising layoffs and slowing job creation helped bolster expectations that the Fed may have delivered its last interest-rate hike of the cycle in July. The central bank raised short-term borrowing costs at the fastest pace since the 1980s to combat the most severe bout of inflation in four decades. Signs of further progress in the Fed’s inflation fight helped boost stocks in November, after three straight months of declines.

Fed Gov. Lisa Cook said Thursday that inflation can keep declining without a sharp spike in unemployment, but warned that a “soft landing” for the U.S. economy “is not assured.”

Gains for stocks also have been aided by falling Treasury yields, which continued to slide on Thursday.

The 10-year Treasury yield
was trading at 4.43%, down 11 basis points on the day. Yields, which move inversely to bond prices, have fallen dramatically from a 16-year high of about 5% reached last month.

Weekly jobless-claims data released Thursday showed the number of Americans applying for unemployment benefits jumped to a three-month high, the latest sign of a cooling labor market.

On the earnings front, a reminder of the market’s underlying fragility came after hours on Wednesday. Poorly received results from Cisco Systems
saw the networking company’s stock drop more than 10% on Thursday, leading Dow decliners.

A raft of earnings from other companies early Thursday were also in focus, including Walmart
and Williams-Sonoma
Applied Materials
and Beazer Homes
will present their earnings after the market close.

Walmart shares also weighed on the Dow, falling after the retail giant’s CEO warned of potential “deflation” in the coming months.

See: Walmart CEO expects to see ‘period of deflation’ in the coming months

In other economic news, the Philadelphia Fed said Thursday that its gauge of regional business activity improved slightly to negative 5.9 in November from negative 9 in the prior month. A Fed report on industrial production showed a drop of 0.6% in October, larger than economists had expected. Investors also digested the latest release from the homebuilder-sentiment index, which declined to 34 from 40 in November.

Companies in focus

  • Shares of Macy’s were up, after the department-store chain reported a surprise third-quarter profit that beat expectations.

  • U.S.-listed shares of Alibaba Group
     were falling after the company posted solid earnings but issued a warning about the impact of U.S. export controls.

—Jamie Chisholm contributed reporting

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