Wall Street falls on Fed worries

US stocks suffer worst losses in eight weeks as upbeat data spooks bond investors fearful of Fed stimulus pullback.

United States stocks closed robustly lower, suffering their worst losses in eight weeks, on expectations the latest round of economic reports may allow the US Federal Reserve to pull back on bond purchases soon.

The Dow Jones industrial average closed down 225.47 points, or 1.47%, to 15,112.19 points.

The S&P 500 index lost 24.07 points, or 1.43%, to close at 1,661.32 points.

The S&P has lost nearly 3% since closing at a record on August 2, but remains up more than 16% since the start of 2013.

The Nasdaq Composite closed down 63.16 points, or 1.72%, to 3,606.12 points.

The price on the 10-year Treasury note fell, pushing yields up to 2.78%.

The number of US workers seeking first-time unemployment benefits fell to the lowest level since before the recession, the labour Department said Thursday. Initial jobless claims decreased to a seasonally adjusted 320,000 in the week ended Aug. 10. That compared to estimates for a small gain to 335,000.

Supporting that positive jobs news was data from the Federal Reserve Bank of New York's Empire State Manufacturing Survey released Thursday. While the Empire State's manufacturing activity index fell to 8.24 in August from July's 9.46, the report showed that labour conditions improved sharply, with the employment index rising to 10.84 from 3.26 in July.

Dan Greenhaus, chief global strategist at BTIG, said Thursday's economic data "led people to increase their odds of the Fed reducing purchases in September," thereby prompting a rise in bond yields that unnerved equity markets.

"Employment is the story," said Karyn Cavanaugh, US market strategist at ING Investment Management. "We're getting another knee-jerk reaction to fears of tapering."

Tapering refers to plans for the Fed to eventually pare back its $US85-billion-a-month bond-buying program. The central bank has said that such steps would be taken with improvement in the economy, with special attention paid to the labour situation.

In addition, the consumer price index for July increased 0.2% on the month, and by 0.2% when excluding food and energy, matching forecasts. And July industrial production was unchanged on a seasonally adjusted basis on the month, where economists had expected an increase 0.2%. The use of available production capacity fell to 77.6%.

As bad as the market's selloff might feel, MKM Partners chief market technician Katie Stockton said it's just a matter of no pain, no gain.

"Pullbacks never feel good when you have them, but they are constructive when you've had such a sharp rise," Ms Stockton said. The S&P 500 climbed 8.7% from June 24 to the August 2 all-time high of 1,709.67, before pulling back 2.8%.

 "I wouldn't rush in to buy now," Stockton said, but "it should only be a matter of days before [the pullback] provides a buying opportunity." She sees next support around 1,650, and longer-term support at 1,560.

Meanwhile, disappointing outlooks from Dow components Cisco Systems and Wal-Mart also weighed on stocks.

Cisco slumped 7% after the networking equipment maker said late Wednesday it was cutting 4,000 jobs, or 5% of its global workforce, and projected lower-than-expected earnings for the current quarter.

Wal-Mart also fell after the discount retailer cut its earnings and sales outlook for the rest of the year, citing a challenging retail environment in the US and abroad.

Cosmetic giant Estee Lauder jumped 3.42% after reporting earnings of $US94 million ($A104 million), 84% above last-year's level. Full-year and quarterly profits also bested analyst expectations, in part due to strong results in its skin-care products.

Onyx Pharmaceuticals sank 7.16% following a report that a potential $US9.5 billion acquisition of the company by Amgen has been delayed by a dispute over drug-testing data. Amgen dropped 1.2%.

European markets were broadly lower, with the Stoxx Europe 600 down 1.1%, and on track to snap a five-session win streak.

Asian markets also fell, led by a 2.1% pullback in Japan's Nikkei Stock Average. The index had run up 3.9% over the previous two sessions. China's Shanghai Composite gave up 0.9%.

InvestSMART FORUM: Come and meet the team

We're loading up the van and going on tour from April to June, with events on the NSW central & north coast, the QLD mid-north coast and in Perth, Adelaide, Melbourne, Sydney and Canberra. Come and meet the team and take home simple strategies that you can use to build an investment portfolio to weather any storm. Book your spot here.

Want access to our latest research and new buy ideas?

Start a free 15 day trial and gain access to our research, recommendations and market-beating model portfolios.

Sign up for free

Related Articles