WALL Street’s major indexes closed lower on Thursday with Nasdaq’s 2.5% drop leading the losses as investors took profits, particularly in technology stocks after a three-day rally, while multiple Federal Reserve officials were out talking about inflation and interest rate hikes.
Interest-rate sensitive growth stocks such as technology lagged the broader market in the last session before the fourth-quarter earnings season starts in earnest. The S&P’s technology index fell 2.7% while consumer discretionary fell 2%.
Several Fed officials spoke publicly about battling high inflation with Lael Brainard the latest, and most senior, US central banker signaling that the Fed was getting ready to start raising rates in March.
“When Brainard says we’ve got to do something, they’re going do something,” said Commonwealth Financial Network chief investment officer Brad McMillan, an independent broker-dealer in Waltham, Mass.
He said Brainard’s comments were particularly striking coming from one of the Fed’s most dovish officials.
“There doesn’t seem to be much debate left within the Fed about what direction they’re going, and not even much about how fast they should get there,” he added.
Nasdaq’s decline its biggest one-day percentage loss since Jan. 5 when it fell 3.4% in a single session after hawkish Fed minutes were released for the December meeting. It did not help that Thursday’s rate hike talk had followed the technology-laden Nasdaq’s 1.7% advance in this week’s first three sessions.
Even though US Treasury 10-year yields fell on Thursday, investors focused on profit taking, said Wells Fargo Investment Institute senior global market strategist Sameer Samana.
“We had a pretty nice rebound in the Nasdaq the last few days, so there might just be some lingering nervousness around rates the Fed and some profit taking, especially ahead of earnings,” he added.
Samana described Brainard’s comments as “a psychological hit to those hoping that there was some dissent to starting rate hikes sooner rather than later.”
Wells Fargo followed Goldman Sachs, JPMorgan and Deutsche Bank in forecasting that the Fed might raise interest rates four times this year.
Adding some anxiety for investors, US companies are due to report results on the final quarter of 2021 in the coming weeks with banks JPMorgan Chase, Citigroup and Wells Fargo set to start the ball rolling on Friday, while big technology companies report next week.
Year-over-year earnings growth from S&P 500 companies were expected to be lower in the fourth quarter compared with the first three quarters but still strong at 22.4%, according to IBES data from Refinitiv.
Retail investors have also raised their exposure to bank stocks ahead of the earnings announcements, according to Vanda Research’s weekly report on retail flows.
Delta Air Lines closed up 2% at $41.47 after beating estimates for fourth-quarter earnings. Its chief executive also predicted a swift recovery from turbulence caused by the Omicron coronavirus variant, also helping to lift the S&P 1500 Airlines index 2.6% for the day.
Earlier Data showed the producer price index rose 0.2% last month after advancing 0.8% in November while in the 12 months through December, the PPI rose 9.7% versus the 9.8% forecast of economists polled by Reuters.
The PPI figures come a day after Wall Street indexes cheered consumer inflation numbers that hit a 40-year high but largely met market expectations.
Declining issues outnumbered advancing ones on the NYSE by a 1.27-to-1 ratio; on Nasdaq, a 2.24-to-1 ratio favored decliners.
The S&P 500 posted 44 new 52-week highs and no new lows; the Nasdaq Composite recorded 75 new highs and 360 new lows.
On US exchanges 10.43 billion shares changed hands compared with the 10.39 billion average over the last 20 sessions. — Jan 14, 2022