U.S. Stocks May Regain Ground Following Recent Weakness

The major U.S. index futures are currently pointing to a higher open on Friday, with stocks likely to regain ground after moving sharply lower over the two previous sessions.

Bargain hunting may contribute to initial strength on Wall Street, as traders pick up stocks at reduced levels following recent weakness.

The steep drops seen on Wednesday and Thursday dragged the tech-heavy Nasdaq down to its lowest closing level in over three months.

The S&P 500 also slumped to a nearly three-month closing low, while the narrower Dow slid to a two-month closing low.

Trading activity may be somewhat subdued, however, with a lack of major U.S. economic data likely to keep some traders on the sidelines.

Economic data may attract increased attention in the coming weeks, as traders look for additional clues about the outlook for interest rates.

Next week will see the release of a report on personal income and spending that includes readings on inflation said to be preferred by the Federal Reserve.

Extending the sell-off seen late in Thursday’s session, stocks moved sharply lower over the course of the trading day on Thursday. The major averages all posted steep losses on the day, with the tech-heavy Nasdaq plunging to its lowest closing level in over three months.

The major averages saw further downside going into the close, ending the day just off their lows of the session. The Nasdaq plummeted 245.14 points or 1.8 percent to 13,223.98, the S&P 500 dove 72.20 points or 1.6 percent to 4,330.00 and the Dow tumbled 370.46 points or 1.1 percent to 34,070.42.

Concerns about the outlook for interest rates continued to weigh on Wall Street following the Federal Reserve’s monetary policy announcement on Wednesday.

While the Fed left interest rates unchanged as widely expected, the central bank forecast another rate hike before the end of the year as well as keeping rates at elevated levels for longer than previously anticipated.

“12 of 19 governors at this point currently favor one more interest rate increase in the next two meetings before the end of the year,” said Alex McGrath, Chief Investment officer for NorthEnd Private Wealth. “Additionally the dot plot for rate expectations in 2024 was higher than it had been in previous meetings signaling a hawkish outlook for rates next year, cementing their higher for longer stance.”

He added, “Heading into the fourth quarter with rate expectations remaining elevated, we are more than likely in for a choppy end of the year as the markets digest an outlook less favorable for the growth assets that have driven the market for 2023.”

The worries about interest rates contributed to a surge by treasury yields, with the yield on the benchmark ten-year note jumping to its highest level in almost sixteen years.

Adding to the concerns about interest rates, the Labor Department released a report this morning showing first-time claims for U.S. unemployment benefits unexpectedly fell to a seven-month low in the week ended September 16th.

The report said initial jobless claims dipped to 201,000, a decrease of 20,000 from the previous week’s revised level of 221,000.

Economists had expected jobless claims to inch up to 225,000 from the 220,000 originally reported for the previous week.

With the unexpected decrease, jobless claims fell to their lowest level since hitting 199,000 in the week ended January 28th.

However, Nancy Vanden Houten, Lead .S. Economist at Oxford Economics, said, “The claims data don’t change our call for the Fed to keep rates steady before embarking on a very gradual pace of rate cuts in mid-2024.”

“A sharp rise in unemployment and claims isn’t a prerequisite for the Fed to stop raising rates,” she added. “Fed Chair Powell yesterday noted that the labor market is coming into better balance without a rise in the unemployment rate.”

Interest rate-sensitive commercial real estate stocks saw substantial weakness on the day, resulting in a 3.5 percent nosedive by the Dow Jones U.S. Real Estate Index. The index plunged to its lowest closing level in almost six months.

Considerable weakness was also visible among housing stocks, with the Philadelphia Housing Sector Index tumbling by 2.7 percent to a three-month closing low.

The weakness in the housing sector came after the National Association of Realtors released a report unexpectedly showing a continued decrease in existing home sales.

NAR said existing home sales fell by 0.7 percent to an annual rate of 4.04 million in August after tumbling by 2.2 percent to an annual rate of 4.07 million in July. Economists had expected existing home sales to rise to a rate of 4.10 million.

Retail stocks also saw significant weakness on the day, as reflected by the 2.6 percent slump by the Dow Jones U.S. Retail Index.

Networking, gold and brokerage stocks also showed notable moves to the downside amid broad based weakness on Wall Street.

Commodity, Currency Markets

Crude oil futures are jumping $0.91 to $90.54 a barrel after edging down $0.03 to $89.63 a barrel on Thursday. Meanwhile, after plunging $27.50 to $1,939.60 an ounce in the previous session, gold futures are rising $4.70 to $1,944.30 an ounce.

On the currency front, the U.S. dollar is trading at 148.25 yen versus the 147.59 yen it fetched at the close of New York trading on Thursday. Against the euro, the dollar is valued at $1.0653 compared to yesterday’s $1.0661.

Asia

Asian stocks ended mixed on Friday as fears persisted about the Fed staying hawkish and the Bank of Japan maintained its ultra-loose monetary policy.

While a strengthening dollar and rising Treasury yields spurred risk aversion, Chinese and Hong Kong markets advanced after reports about measures by China to promote the development of its private economy.

China’s Shanghai Composite Index rallied 1.6 percent to 3,132.43, while Hong Kong’s Hang Seng Index jumped 2.3 percent to 18,057.45.

Japanese shares ended lower, and the yen weakened as the Bank of Japan refrained from offering any hints about potential alterations in its dovish stance and a private survey showed Japanese manufacturing activity fell back into contraction in June and service sector growth slowed for the first time in seven months.

The Nikkei 225 Index dropped 0.5 percent to 32,402.41, extending losses for a fourth consecutive session, while the broader Topix Index closed 0.3 percent lower at 2,376.27.

While tech stocks followed their U.S. peers lower, Nippon Television Network soared 13.5 percent after saying that Studio Ghibli, the famed Japanese animation studio of Hayao Miyazaki, will become its subsidiary.

Seoul stocks ended slightly lower, with the Kospi falling 0.3 percent to 2,508.13 amid growing prospects of higher-for-longer U.S. interest rates.

Australian markets recovered from an early slide to finish marginally higher after four days of losses. Energy stocks and utilities advanced as oil prices rose on concerns that a Russian ban on fuel exports could tighten global supply.

Across the Tasman, New Zealand’s benchmark S&P NZX-50 Index rose 0.5 percent to 11,372.62 after a late surge.

Europe

European stocks are turning in a mixed performance during trading on Friday but are set for a weekly drop on fears of elevated global interest rates.

U.K. stocks have moved to the upside and the British pound has extended a multi-week decline, a day after the Bank of England held rates steady for the first time since November 2021.

Eurozone government bond yields have slipped after a survey showed that the eurozone economy will likely contract in the third quarter.

The flash U.K. flash composite purchasing managers’ index fell to a 32-month low of 46.8 points in September, while the latest readings on U.K. retail sales and consumer confidence painted a positive picture of the economy.

While the French CAC 40 Index is down by 0.3 percent, the German DAX Index is up by 0.1 percent and the U.K.’s FTSE 100 Index is up by 0.7 percent.

Sanofi SA shares have fallen in Paris. Based on the evolution of foreign currencies, the company said its preliminary estimate of negative currency impact on third quarter sales is approximately between 7.5 percent and 8.5 percent and approximately between 8.5 percent and 9.5 percent on business EPS.

Meanwhile, infant and young children’s retailer Mothercare has soared after saying it expects to complete a refinancing shortly.

Adevinta has also skyrocketed after the Norwegian online marketplace company confirmed it had received a takeover proposal from a consortium led by Permira and Blackstone.

AstraZeneca has also rallied in London after announcing it found favorable results in a trail for a common type of breast cancer.

U.S. Economic Reports

San Francisco Federal Reserve President Mary Daly is due to participate in a virtual fireside chat on inflation, monetary policy and the economy before an event held in coordination with Greater Phoenix Leadership at 1 pm ET.