In a continuation of recent volatility, U.S. equity indexes experienced declines during midday trading on Thursday, with investors bracing for Federal Reserve Chair Jerome Powell's keynote address scheduled for Friday at the Jackson Hole Fed Symposium. The S&P 500 index recorded a drop of 0.5%, reaching a level of 5,593.3, while the Nasdaq Composite decreased by 0.9%, landing at 17,752.9.
The Dow Jones Industrial Average also fell by 0.4% to close at 40,722.9. Notably, the sectors that attracted the most selling pressure were technology and consumer discretionary, although energy stocks showcased some resilience, attracting buyers as the day unfolded. The CBOE Volatility Index (VIX), known for tracking market volatility, posted a significant rally, leaping by 18% to settle at 17.41.
This surge occurred against the backdrop of heightened expectations for a potential 25 basis-point interest rate cut in the following month, as indicated by the CME Group’s FedWatch Tool, which raised the probability of such a move to 75% by Thursday afternoon, up from 62% a day earlier. In an exclusive interview with CNBC from the Jackson Hole symposium, Philadelphia Federal Reserve Bank President Patrick Harker addressed the recent preliminary estimate from the Bureau of Labor Statistics indicating an 818,000 downward adjustment to payrolls.
Harker indicated that this adjustment was not unexpected and acknowledged a weakening trend in the job market in recent months, although he noted it was a decline from a historically high level. According to Harker, the Federal Open Market Committee (FOMC) needs to adopt a 'methodical' approach in reducing interest rates, with the potential for action at their upcoming meeting scheduled for September 17-18.
He emphasized that the Fed's commitment to lowering rates holds greater significance than the magnitude of the reductions themselves. Harker’s statements resonate with the insights shared in the minutes from the Federal Reserve's July monetary policy meeting, which were released on Wednesday. These minutes underscored that a rate cut in September is increasingly likely, reflecting the sentiment among a 'vast majority' of policymakers advocating for monetary policy easing if forthcoming data aligns with their projections.
The minutes articulated that participants felt more confident that recent data indicated inflation was progressing towards the committee's target. During Thursday's trading session, most Treasury yields climbed, with the 10-year yield surging by 9.5 basis points to reach 3.87%. The yield on the two-year note increased by 9.6 basis points, bringing it to 4.02%.
Concurrently, the prices for precious metals experienced a downturn, with gold falling by 1.1% to $2,518.80 per ounce, while silver saw a decline of 1.4%, trading at $29.55. On the economic front, U.S. initial jobless claims rose to 232,000 for the week ending August 17, marking an increase from an upwardly revised level of 228,000 the previous week, aligning with expectations reported in a Bloomberg survey.
Additionally, S&P Global's August flash reading of manufacturing conditions showed a concerning drop to an eight-month low of 48, down from July's reading of 49.6, and lower than the anticipated 49.5. The reading indicates a contraction in the manufacturing sector, corroborating earlier trends observed in the Empire State and Philadelphia Fed manufacturing indexes released on August 15.
In commodity markets, West Texas Intermediate crude oil surged by 2%, selling at $73.34 per barrel. In company-specific news, Amazon.com’s ($AMZN) Amazon Web Services announced late Wednesday its plans to significantly invest approximately $6.2 billion in Malaysia by the year 2038 while concurrently launching the AWS Asia Pacific (Malaysia) Region.
Despite this expansion initiative, Amazon's shares dipped by 1.3% intraday, ranking as the third-worst performer on the Dow. Meanwhile, Advance Auto Parts ($AAP) reported a sharper-than-expected decline in fiscal Q2 earnings, revised its full-year outlook downwards, and disclosed its plan to sell its Worldpac wholesale business to Carlyle Group ($CG) for $1.5 billion in cash, resulting in a staggering 16% drop in intraday share value..