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Dow struggles for a third day on Fed taper worries

Dow struggles for a third day on Fed taper worries

19 Aug 2021

A trader works on the trading floor at the New York Stock Exchange (NYSE) in Manhattan, New York City, U.S., August 10, 2021.

Andrew Kelly | Reuters

The Dow Jones Industrial Average slipped Thursday as concerns about the Federal Reserve removing stimulus loomed.

The Dow shed about 160 points, or 0.5%. The S&P 500 dipped 0.1%. The Nasdaq Composite traded near the flatline.

The S&P 500 and the Dow saw a second-straight day of losses Wednesday, with the Dow shedding more than 380 points for its worst performance in over a month. Meeting minutes from the Fed’s gathering in July showed the central bank has started eyeing tapering its $120 billion in monthly bond purchases before the year-end.

“The recent bout of market angst seems to be a combination of investor vertigo, looking for an excuse to take profits, and the bumpy path of reopening the economy, with new Covid variants on the rise,” Art Hogan, chief market strategist at National Securities, said in a note.

Stocks closely linked to the economy led losses. Steelmaker Nucor lost about 3%. Oil companies Devon Energy and Occidental Petroleum shed about 5% each. Miner Freeport-McMoRan fell around 5%. General Motors fell more than 2%. Reopening plays like airlines and hotels were also lower.

WTI crude oil dropped more than 3%, falling below $64, and copper lost about 2% on concern about global growth without the Fed bond-buying support. The 10-year Treasury yield fell 3.5 basis points to 1.238%. (1 basis point equals 0.01%.)

Meanwhile, defensive stocks like consumer staples and health care names gained, helping to stem the decline. Procter & Gamble and Merck each added about 1%.

Shares of tech stocks including Microsoft and Netflix traded in the green. Nvidia’s stock jumped around 4% after the chip giant’s quarterly earnings and revenue beat Wall Street estimates amid strong graphics cards sales.

“I don’t think we’re in a bubble, which is what I think many bears think we are,” innovation investor Cathie Wood said on CNBC’s “Tech Check”. “We’re focused on the deflationary forces that are building up in the economy.”

Robinhood shares tumbled more than 9% after its first earnings report as a public company. The app warned investors that its third-quarter results could be affected by a slowdown in trading.

“For the three months ended September 30, 2021, we expect seasonal headwinds and lower trading activity across the industry to result in lower revenues and considerably fewer new funded accounts than in the prior quarter,” the company said in the earnings release.

Investors digested mixed economic data released Thursday. First-time jobless claims last week hit a new pandemic-era low at 348,000, declining more than expected from the week prior.

The Philadelphia Fed Index, a gauge of growth in the region, still indicated expansion but at a level worse than expected. The August reading was 19.4, below the 22 consensus of economists polled by Dow Jones.

Goldman Sachs cut its economic growth forecast for the current quarter to 5.5% from 9% Wednesday night, adding to the negative sentiment. The firm also sees higher inflation than expected for the rest of the year.

“The impact of the Delta variant on growth and inflation is proving to be somewhat larger than we expected,” wrote Jan Hatzius, chief economist at Goldman Sachs, in the note.

For the week, the three major indexes are down more than 1%.

—CNBC’s Michael Bloom contributed reporting.