U.S. stocks dropped in choppy trading on Thursday as investors mulled over several economic reports that showed a muddy picture of the U.S. economy.
The Nasdaq Composite shed 1.43% to close at 11,552.36, while the S&P 500 fell 1.13% to 3,901.35. The Dow Jones Industrial Average outperformed but still dropped 173.27 points, or 0.56%, to 30,961.82 for its lowest close since July 14.
Shares of Adobe weighed on the Nasdaq and S&P 500. The software stock lost more than 16% after the company announced a $20 billion deal to buy Figma. The weakness spread to other tech stocks, with Apple falling 1.9% and Salesforce sliding 3.4%.
Bank stocks were a bright spot, with Goldman Sachs and JPMorgan rising more than 1% apiece. UnitedHealth Group rose 2.6%.
Wall Street is still trying to find its footing after a surprise increase in August's consumer price index report sparked a decline of more than 1,200 points for the Dow on Tuesday. A minor rebound on Wednesday was wiped out by Thursday's declines.
A mixed batch of economic reports on Thursday did little to bolster investor confidence. Initial jobless claims came in better than expected, but import prices saw a smaller drop than estimates suggested. Retail sales beat expectations, but were negative when excluding autos. Manufacturing data also showed a slowing economy.
While those reports suggest that the U.S. consumer sector is holding its ground for now, they will do little to alleviate concerns about persistent inflation. Investors fear that the Federal Reserve will be more aggressive with its rate hikes to fight inflation, raising the odds of a recession.
"The Fed needs to pick their poison. Do you continue strong ahead to tamp down inflation at the risk of recession, at the risk of increasing unemployment? It's truly a dilemma, but I think that given what we have heard from the Fed the focus is squarely on inflation," said Mike Loewengart, head of model portfolio construction at Morgan Stanley.
Stocks close lower
The major averages finished Thursday with sizeable losses, erasing their small gains from the prior session. The Nasdaq was the worst performer, falling 1.43%.
Adobe closed down more than 16%.
— Jesse Pound
Stocks solidly lower in final hour of trading
With less than an hour left of trading on Thursday, the major averages are slipping toward session lows. The Nasdaq Composite is down 1.3%, while the S&P 500 is off by nearly 1%. The Dow, which was up more than 100 points earlier in the Dow, has slid into the red by 130 points, or 0.4%.
Adobe has been an anchor for the broader market all day and is easily the worst performer in the Nasdaq 100 and S&P 500, falling nearly 17%.
— Jesse Pound
Third quarter earnings growth estimates have more than halved since July 1
Analysts' third quarter earnings growth estimates for the S&P 500 have more than halved since July 1, to 5.1% from 11.1%, according to Refinitiv.
The rate of decline has slowed, however. A bit more than a month ago, on August 12, the expected Q3 growth rate was 5.8%.
Six of the 11 sectors inside the S&P 500 are expected to see lower earnings than a year ago. At the start of second quarter earnings season, only three sectors were forecast to see smaller profits.
What happened? Consumer staples (-3.1% now vs +2.1% on July 1), health care (-4% vs +2.1%) and technology (-3.3% vs +5.8%) joined financials (-8.9% now vs -4.4% then), communication services (-15.9% vs -3.2%) and utilities (-7.1% vs -6.8%) as groups where profits are expected to decline.
Energy estimates are higher than they were (120.5% now vs 102.6% on July 1).
Third quarter revenue estimates are little changed lately, currently standing at 9.8% versus 9.9% a month ago. That's down from the first and second quarters' 14% but higher than fourth quarter's 7.2% estimate.
— Scott Schnipper, Robert Hum
1-year Treasury yield briefly tops 4%
Treasury yields continued their march higher on Thursday, with the short end of the curve leading the way.
The 1-year Treasury yield briefly crossed 4% on Thursday and currently trades near 3.992%. The 2-year Treasury yield is not far behind at 3.86%.
Yields move opposite of price.
— Jesse Pound
Boeing's Calhoun says 737 Max 7 certification should come by year end
Boeing CEO Dave Calhoun told reporters in Washington on Thursday that he expects the Federal Aviation Administration to certify the 737 Max 7 by the end of the year, before new rules take effect that mandate new cockpit alerting requirements. Those requirements were passed in the wake of two deadly crashes of Max jetliners, one in 2018 and another about five months later.
Shares of Boeing were up 2.2% in afternoon trading.
Separately, Boeing's CFO Brian West said the company will start to remarket some of the 737 Max planes that have been earmarked for Chinese customers, as officials in China still haven't cleared the planes to fly again.
"We don't do that lightly. These customers are incredibly important," West said at a Morgan Stanley conference on Thursday.
— Leslie Josephs
JPMorgan Chase shares due for a bounce on rising rates, good trading results, Bank of America says
A recent update from JPMorgan Chase management gives Bank of America analyst Ebrahim Poonawala greater confidence that shares of the bank are due for a bounce after underperforming this year.
JPMorgan president Daniel Pinto said Tuesday that third-quarter trading revenue was heading 5% higher from a year earlier, better than the 5% decline baked into the analyst's previous forecast, Poonawala said Thursday in a note.
That, plus expectations that the Federal Reserve will boost its benchmark rate by 75 basis points, more than the 50 basis point move expected earlier, led the Bank of America analyst to increase his third quarter EPS estimate on JPMorgan to $2.95 from $2.84.
While JPMorgan shares rose 2.6% Thursday along with peers, they are still down 25% this year on concerns that the Fed's hikes will ignite an economic downturn, leading to a wave of defaults.
"We believe the combination of higher net interest income, diminishing EPS risk tied to capital markets revenue, well understood capital/expense constraints and a stock that has de-rated significantly sets up JPM attractively heading into 3Q results" in mid-October, Poonawala wrote.
The analyst has a "buy" rating and $135 price target on the bank.
Software ETF on pace for worst week since January
The iShares Expanded Tech-Software Sector ETF is down more than 3% Thursday, underperforming the broader market, and more than 6% week-to-date, on track for its fourth down week in five and the steepest weekly loss since early January.
Among the stocks in the ETF that are hardest hit are Adobe, ServiceNow and Zscaler.
Adobe has traded more than 19 million shares Thursday after the announcement of its $20 billion deal to buy Figma, surpassing the 17.4 million shares that traded one day in Dec. 2012. Its more than 16% decline leaves Adobe on pace for its largest one-day loss since Sept. 2010.
— Scott Schnipper, Gina Francolla
Mortgage rates rise above 6%
Mortgage rates have topped 6% for the first time since 2008, according to Freddie Mac.
The average for a 30-year fixed rate mortgage is now 6.02%, up from 5.89% last week, according to a survey from the real estate company. The benchmark mortgage rate has more than doubled over the past year as the Federal Reserve has hiked interest rates.
However, even as the higher rates have raised the monthly cost for prospective buyers, home prices have not moved materially lower.
"Although the increase in rates will continue to dampen demand and put downward pressure on home prices, inventory remains inadequate. This indicates that while home price declines will likely continue, they should not be large," Freddie Mac said.
— Jesse Pound
Ether struggles as merge takes effect
The ethereum merge has not been bullish for ether, at least immediately. The blockchain network's main coin is now down 6% for the day.
— Jesse Pound
Ray Dalio says higher interest rates could trigger a 20% drop or more in stocks
Billionaire investor Ray Dalio issued a dismal outlook for the markets and the economy, predicting a 20% or greater plunge in stock prices, as the Federal Reserve continues to combat inflation with aggressive rate hikes.
"I estimate that a rise in rates from where they are to about 4.5 percent will produce about a 20 percent negative impact on equity prices based on the present value discount effect and about a 10 percent negative impact from declining incomes," the founder of Bridgewater said in a LinkedIn post dated Tuesday.
The Fed is expected to approve next week a third consecutive 0.75 percentage point interest rate increase this month that would take benchmark rates up to a range of 3%-3.25%. Most traders expect interest rates to top 4% by the end of 2022, according to CME FedWatch tool.
— Yun Li
Humana climbs after hiking earnings guidance
Health insurance stock Humana popped 8% after the company raised its earnings guidance for the full fiscal year and announced a new board member.
Humana said it now expects adjusted earnings this year of $25 per share, up from $24.75 previously. The company cited "lower-than-expected medical cost trends" as a reason for its adjusted guidance.
Humana also said it is targeting $37 in adjusted EPS in 2025.
— Jesse Pound
Financial stocks rise in early trading
Financial stocks are outperforming the broader market on Thursday morning, as rates move solidly higher once again.
Shares of JPMorgan have gained 1.5%, while Goldman Sachs is up 1.6%.
Fintech company SoFi is doing even better, with shares up 4.4%.
— Jesse Pound
Oil drops more than 2%
Oil prices declined more than 2% on Thursday as supply concerns were outweighed by expectations of falling demand and a stronger dollar.
Oil demand growth will halt in the fourth quarter, according to the International Energy Agency this week. Meanwhile, the dollar held near recent peaks ahead of a potentially large interest rate hike.
Brent crude fell 2.6% to $91.63 per barrel. U.S. West Texas Intermediate crude was 2.5% lower to $86.25 per barrel.
— Sarah Min
Stocks open lower
The three major market averages fell at the market open on Thursday, led to the downside by 0.7%. Shares of Adobe sank more than 11%, weighing on the tech-heavy index.
— Jesse Pound
Economic data 'unimpressive,' Wells Fargo's Schumacher says
A flurry of economic data at 8:30 painted a mixed picture of the U.S. economy. Retail sales rose but saw negative revisions to the prior month. The Philly Fed manufacturing survey surprisingly turned negative.
"It's unimpressive. It looks like the economy didn't fall off a cliff … it takes some of the steam out of the 100 basis point argument. The market's initial read was the data was pretty crummy, but on a few minutes reflection, the reaction is the data is just a little weak," said Michael Schumacher, head of macro strategy at Wells Fargo.
— Jesse Pound, Patti Domm
Unemployment claims continue to fall
Initial unemployment claims fell slightly to 213,000, continuing a trend of falling unemployment claim volume that began last month.
The week saw a decrease of about 5,000 from the prior week, bringing national claims down to the lowest level since late May, according to data from the Department of Labor. Claims are down about 41% from 363,000 a year ago.
— Alex Harring
Retail sales rise 0.3% in August
Consumer spending held up last month with retail sales rising 0.3%, the Commerce Department reported Thursday. Economists were expecting sales to be flat for August. However, retail sales for July got revised lower from flat to a 0.4% drop.
— Yun Li
Adobe shares drop after Figma acquisition announcement
Adobe announced on Thursday morning that it has a deal to acquire design software company Figma in a deal worth about $20 billion.
Adobe will pay a mix of cash and stock for the transaction. Shares of Adobe dropped more than 8% in premarket trading.
Figma is a private company based out of San Francisco.
— Jesse Pound
Seasonal patterns could halt a market comeback
As the stock market tries to climb out of the whole caused by Tuesday's massive drop, seasonal forces could be holding it down in the near term.
"We are entering one of the worst seasonal stretches of the year through mid-October. The first test of 3,900 had some validity as a low, but subsequent tests are less likely to hold, in our view," BTIG strategist Jonathan Krinsky wrote in a note to clients on Wednesday evening.
Krinsky said that the lack of reaction the options market during Tuesday's sell-off suggests that investors are still "complacent" which means another big move downward could be in the cards.
"Ultimately we continue to think the June lows (~3,660) must be firmly in the conversation now," he added.
Railroad stocks tick up following labor deal expected to avert strike
Shares of railroad companies rose before the bell Thursday following a tentative, last-minute labor deal with the unions representing railway workers that is expected to avert a strike.
CSX Corp. and Union Pacific rose 5.38% and 3.92% in early trading. Norfolk Southern also went up 1.5%.
President Joe Biden's announcement of the agreement comes amid a period of tumult within the railroad industry. The unions, which collectively represent about 60,000 workers, prepared a nationwide strike that was expected to have halted more than 7,000 trains and cost up to around $2 billion per day. Railroads account for about 40% of long-distance trade in the U.S.
The White House had communicated with the unions and companies for several months, though they previously could not come to a consensus on sick time. Under the tentative agreement, rail employees will see a 24% wage increase between 2020 and 2024. The agreements must be ratified by each union.
— Alex Harring, Leslie Josephs, Melodie Warner
Crypto market is calm after ethereum merge is completed
The long-awaited ethereum merge took effect overnight. The software upgrade switches the ethereum network to proof-of-stake from proof-of-work, a move that should significantly reduce energy consumption for the blockchain network.
However, there did not appear to be an immediate reaction in crypto prices. Ether, the flagship token for the ethereum network, dipped 0.3% to $1,585.18 on Thursday morning.
— Jesse Pound
Netflix gets upgrade at Evercore ISI
Netflix shares rose more than 2% after analysts at Evercore ISI upgraded the streaming giant to outperform from in line, saying the company's new ad-supported subscriber tier can give the company a much-needed boost.
"We believe these opportunities, especially the ad-supported service, constitute Growth Curve Initiatives (GCIs)—catalysts that can drive a material reacceleration in revenue growth," the firm wrote. "We don't believe these opportunities are factored into current Street estimates or into NFLX's current valuation. Hence the upgrade."
CNBC Pro subscribers can read more here.
— Sam Subin
Europe markets higher as banks lead gains
European markets rose in early trading Thursday, with banking stocks taking the lead.
The pan-European Stoxx 600 opened in the red before moving to a 0.34% gain through the first hour of trading, as banking stocks added 1.75%. The euro zone bank index hit its highest level since June 10, Reuters reported.
— Jenni Reid
CNBC Pro: Morgan Stanley says the S&P 500 is set for a comeback by year-end. These are its top stock picks
U.S. markets had a meltdown on Tuesday — the worst since June 2020 — following yet another hot inflation report. But that may not last for long, according to Andrew Slimmon of Morgan Stanley Investment Management, who says the S&P 500 could enjoy upside by year-end.
He predicts the level that the S&P 500 will rise to by the year end, and also picks stocks to buy into the "fear."
— Weizhen Tan
U.S. 2-year Treasury yields hits 3.8% again
Short-term bond yields, which are most sensitive to Fed policy, soared following the U.S. inflation report on Tuesday.
Yields move inversely to prices, and a basis point is equal to 0.01%.
Inflation isn't as bad as the data makes it seem, says Commonwealth's McMillan
This week's CPI data was "terrible," but there are signs some key components may improve shortly, according to Brad McMillan, chief investment officer at Commonwealth Financial Network. One of them is Wednesday's producer price index report.
"The headline number held steady at 0.2 percent, but the annual number dropped by much more, from 9.8 percent to 8.7 percent (a much bigger drop than the CPI)," he said. "Similarly, for the core PPI, while there was a gain from 0.2 percent to 0.4 percent, the annual number was down as well, from 7.6 percent to 7.3 percent. That's still too high, but even if that monthly 0.4 percent figure held, there would be a decline in inflation going forward."
"As always, markets have reacted to a headline—although not about the headline number. But when you look at the details, things are not so bad," he added. "The CPI and the market reaction suggest inflation will keep rising at an accelerating rate, but not all of the data agree. Even using much of the data as it stands, it still looks likely inflation will end the year lower than it is now."
— Tanaya Macheel
Danaher shares rise after hours
Danaher was one of the top stock movers in extended trading Wednesday evening after the medical company announced plans to spin off its environmental and applied solutions business to create an independent, publicly traded company. Its shares rose about 4%.
Danaher also raised its third-quarter revenue guidance, according to FactSet.
— Tanaya Macheel
Stock futures open slightly higher
Dow Jones Industrial Average futures opened 33 points, or 0.11%, higher Wednesday night. S&P 500 futures added 0.15%, while Nasdaq 100 futures advanced 0.14%.
The moves came after all of the major averages ended a choppy trading day modestly higher.
— Tanaya Macheel