U.S. Stocks Pull Back Sharply Amid Ongoing Interest Rate Worries

After failing to sustain an initial move to the upside, stocks showed a significant downturn over the course of the trading session on Thursday. The major averages pulled back well off their early highs and into negative territory.

The major averages climbed off their worst levels going into the close but remained firmly in the red. The Dow fell 249.13 points or 0.7 percent to 33,699.88, the Nasdaq slumped 120.94 points or 1.0 percent to 11,789.58 and the S&P 500 slid 36.36 points or 0.9 percent to 4,081.50.

The sharp pullback on Wall Street partly reflected ongoing interest rate concerns following hawkish comments by some Federal Reserve officials.

Edward Moya, senior market analyst at OANDA, noted some traders were placing bets the Fed will have to “do a lot more tightening than what Wall Street is pricing in.”

“Arguments are being made for the Fed to raise rates to 6%, with one strategist calling for a move towards 8%” Moya said. “A month ago, it seemed very likely that the Fed would be done raising rates in March and now that view could be changing.”

The interest rate worries offset the positive sentiment generated in reaction to the latest batch of corporate earnings news.

Shares of Disney (DIS) showed a notable downturn on the day after helping lead the initial advance despite the entertainment giant reporting better than expected fiscal first quarter results.

Disney CEO Bob Iger also announced the company would be cutting 7,000 jobs as part of a broader cost-cutting and restructuring plan.

In U.S. economic news, a report released by the Labor Department showed first-time claims for U.S. unemployment benefits rebounded by slightly more than expected in the week ended February 4th.

The Labor Department said initial jobless claims rose to 196,000, an increase of 13,000 from the previous week’s unrevised level of 183,000. Economists had expected jobless claims to inch up to 190,000.

The uptick came after jobless claims decreased in four out of the five previous weeks, falling to their lowest level since hitting 181,000 in the week ended April 23, 2022.

Sector News

Airline stocks moved sharply lower over the course of the session, resulting in a 3.6 percent nosedive by the NYSE Arca Airline. With the steep drop on the day, the index hit its lowest closing level in almost a month.

Substantial weakness also emerged among oil service stocks, as reflected by the 3.1 percent plunge by the Philadelphia Oil Service Index.

The sell-off by oil service stocks came amid a decrease by the price of crude oil, with crude for March delivery falling $0.41 to $78.06 a barrel.

Gold stocks also came under pressure amid a decrease by the price of the precious metal, dragging the NYSE Arca Gold Bugs Index down by 2.3 percent.

Steel, banking and chemical stocks also showed significant moves to the downside, moving lower along with most of the other major sectors.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region turned in a mixed performance on Thursday. China’s Shanghai Composite Index surged by 1.2 percent, while Japan’s Nikkei 225 Index edged down by 0.1 percent and Australia’s S&P/ASX 200 Index fell by 0.5 percent.

Meanwhile, the major European markets all moved to the upside on the day. While the French CAC 40 Index jumped by 1.0 percent, the German DAX Index advanced by 0.7 percent and the U.K.’s FTSE 100 Index rose by 0.3 percent.

In the bond market, treasuries turned lower over the course of the session after seeing initial strength. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, rose by 3 basis points to 3.683 percent after hitting a low of 3.575 percent.

Looking Ahead

A preliminary report consumer sentiment may impact trading on Friday, with traders likely to keep an eye on readings on inflation expectations.

On the earnings front, Expedia (EXPE), Lyft (LYFT), PayPal (PYPL) and Yelp (YELP) are among the companies releasing their quarterly results after the close of today’s trading.

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