Fed Fears Return to Hound Markets
Stocks fell hard on Thursday, reminding us how the stock market reacts to serious threats to the Federal Reserve’s bond-buying program. The advance estimate on third-quarter GDP was too good. Although economists were expecting to see an annual rate of GDP expansion at 2.0 percent during the third quarter, the Bureau of Economic Analysis reported third-quarter growth at a 2.8 percent rate. The news scared investors who have been concerned that the Fed might begin to taper its bond purchases before March. Worse yet, the Department of Labor reported that initial unemployment claims declined by 9,000 to 336,000. The Fed has been watching for improvement in the labor market before it begins the taper.
The Dow Jones Industrial Average (NYSEARCA:DIA) lost 152 points to finish Thursday’s trading session at 15,593 for a 0.97 percent decline. The S&P 500 (NYSEARCA:SPY) sank 1.32 percent to 1,747. The Nasdaq 100 (NASDAQ:QQQ) took a 1.89 percent nosedive to finish at 3,321. The Russell 2000 (NYSEARCA:IWM) sank 1.78 percent to 1,079. In other major markets, oil (NYSEARCA:USO) declined 0.64 percent to close at $33.17.
On London’s ICE Futures Europe Exchange, December futures for Brent crude oil fell $1.82 (1.73 percent) to $103.53/bbl. (NYSEARCA:BNO). December gold futures declined $10.60 (0.80 percent) to $1,307.20 per ounce (NYSEARCA:GLD). Transports jackknifed on Thursday, with the Dow Jones Transportation Average (NYSEARCA:IYT) falling 1.64 percent.
In Japan, stocks declined after a number of bleak earnings forecasts were released by some closely-watched companies, including Toyota and Casio. The exchange rate for the yen was holding at 98.60 per dollar just before Thursday’s closing bell in Tokyo (NYSEARCA:FXY). The Nikkei 225 Stock Average fell 0.76 percent to 14,248 (NYSEARCA:EWJ).
In China, stocks continued to decline as investors remained anxious about the economic policy meeting scheduled for November 9-12 in Beijing. The Shanghai Composite Index fell 0.48 percent to 2,129 (NYSEARCA:FXI). Hong Kong’s Hang Seng Index dropped 0.68 percent to end the day at 22,881 (NYSEARCA:EWH).
Stocks retreated moderately in Europe after the European Central Bank cut its benchmark interest rate to 0.25 percent from 0.50 percent. Most economists were not expecting to see an interest rate cut by the ECB at this month’s meeting. Lower interest rates cause a slowdown in economic expansion. The Euro STOXX 50 Index finished Thursday’s session with a 0.44 percent decline to 3,042 — remaining above its 50-day moving average of 2,937. Its Relative Strength Index is 58.54 (NYSEARCA:FEZ).
Technical indicators revealed that the S&P 500 remained above its 50-day moving average of 1,705 after finishing Thursday’s session with a 1.32 percent drop to 1,747. Its Relative Strength Index dropped from 65.49 to 54.06. The MACD crossed below the the signal line, suggesting that the S&P 500 could continue its decline during the immediate future.
For Thursday, all sectors finished in significantly in negative territory. The consumer discretionary sector took the hardest hit, with a 2.07 percent drop.
Consumer Discretionary (NYSEARCA:XLY): -2.07 percent
Technology: (NYSEARCA:XLK): -1.31 percent
Industrials (NYSEARCA:XLI): -1.06 percent
Materials: (NYSEARCA:XLB): -1.32 percent
Energy (NYSEARCA:XLE): -1.54 percent
Financials: (NYSEARCA:XLF): -1.12 percent
Utilities (NYSEARCA:XLU): -0.94 percent
Health Care: (NYSEARCA:XLV): -0.89 percent
Consumer Staples (NYSEARCA:XLP): -1.46 percent
Bottom line: Increased concern that the Federal Reserve will begin the cutbacks to its bond purchases sooner than expected sent stocks sinking on Thursday after the advance estimate of third-quarter GDP was significantly higher than anticipated.
John Nyaradi is the author of The ETF Investing Premium Newsletter.