Markets: News  

By Joseph Adinolfi and William Watts

S&P 500 sheds roughly 5% in past 3 sessions

U.S. stocks finished lower for a third straight day on Tuesday as strong labor-market data gave the Federal Reserve even more ammunition to continue its aggressive pace of interest-rate hikes.

What happened

On Monday, the Dow fell 184 points, or 0.6%, while the S&P 500 shed 0.7% and the Nasdaq Composite lost 1%.

What drove markets

Stocks opened with small gains Tuesday, attempting to stabilize after back-to-back losses caused by a more-hawkish-than-expected speech on Friday by Fed Chairman Jerome Powell.

But the bounce quickly lost steam, with indexes turning lower after data showed U.S. job openings rose to 11.2 million in July, up from a revised 11 million a month earlier. Also, the Conference Board's consumer-confidence index jumped to 103.2 in August from a July reading of 95.3.

As a result, all three U.S. benchmarks closed below their 50-day moving averages for the first time since July, according to Dow Jones Market Data. The S&P 500 also lost roughly 5% over the last three sessions.

Strength in the jobs market could bolster the Fed's determination to raise interest rates and keep them elevated in its effort to wring out inflation, which may be bad for asset prices, analysts said.

"A much higher than expected number of job openings caused an immediate decline in both stock and bond prices. Normally, seeing companies wanting to hire more workers is a good thing. However, after Fed Chair Powell's short Jackson Hole speech myopically focused on reducing demand and jobs, more jobs is more reason to for the Fed to raise rates and inflict more economic harm," said Bryce Doty, senior vice president and senior portfolio manager at Sit Fixed Income Advisors, in emailed comments.

Some market watchers contend investors were looking past positive developments around inflation, including the boost provided to the consumer-confidence reading from falling gasoline prices.

"The inflation data are coming the Fed's way faster than most realize, and this report reinforces it. Markets will misread this report as an indication that the Fed will hike rates more than expected," said Jamie Cox, managing partner at Harris Financial Group, in emailed comments. "The Fed is prone to mistakes and there is a very good chance that inflation comes down for reasons other than rate increases."

Analysts said it was no surprise to see choppy market action given the thin volumes in end-of-summer trading and lingering worries that more aggressive interest rate rises by the Fed may slow the U.S. economy.

"Markets are repricing the implications for earnings growth of global central bankers' determination to defeat inflation," said Ian Williams, economics and strategy research analyst at Peel Hunt.

"Fed Chair Powell's comments at Jackson Hole have been echoed by his FOMC colleagues and other central bank representatives, notably from the ECB," he added in a morning note.

The Federal Reserve likely needs to get its benchmark interest rate "somewhat above" 3.5% level to slow the economy, said New York Fed President John Williams, on Tuesday. That level would be "restrictive" and able to slow down demand.

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Richmond Federal Reserve President Tom Barkin on Tuesday warned that a recession is "obviously a risk" in the process of getting inflation under control. "We're committed to getting inflation under control and there's a path to get there," Barkin said, in a discussion with the Chamber of Commerce in Huntington, West Virginia.

Atlanta Fed President Raphael Bostic on Tuesday said policy makers know they have a "fight ahead" to bring inflation down but are committed to the task. In an essay published on his bank's website, Bostic said the Fed is committed to keeping the economy "as strong as possible."

Traders also noted that unlike in recent years when the Fed was eager to be seen as supporting markets, the central bank now wishes to use lower asset prices as part of its tool set for suppressing inflation.

This shift was illustrated by Minneapolis Federal Reserve Bank President Neel Kashkari, who told Bloomberg on Monday that the market dive following Powell's comments was welcome.

"I was actually happy to see how Chair Powell's Jackson Hole speech was received...People now understand the seriousness of our commitment to getting inflation back down to 2%," Kashkari said.

See:Stocks headed for more pain as 3,900 becomes new line in the sand for the S&P 500, chart watchers say

In other economic data, the S&P CoreLogic Case-Shiller 20-city index decelerated to a 18.6% year-over-year gain in June down from 20.5% in the previous month. Looking ahead, a closely watched reading on nonfarm payrolls for August is due out on Friday.

-Joseph Adinolfi

Companies in focus

How are other assets fared

(END) Dow Jones Newswires

August 30, 2022 16:40 ET (20:40 GMT)

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