Markets: News  

By Isabel Wang and Joseph Adinolfi

U.S. dollar index at 20-year high

U.S. stocks finished mostly higher on Thursday as bond yields rose and another pandemic lockdown in the southwestern Chinese metropolis of Chengdu added to concerns about economic growth. The Dow Jones Industrial Average and the S&P 500 index snapped a four-day losing streak, while the Nasdaq Composite recorded its longest losing streak since February.

How stocks are trading

On Wednesday, the Dow Jones Industrial Average fell 308 points, or 0.96%, to 31791, the S&P 500 declined 44 points, or 1.1%, to 3986, and the Nasdaq Composite dropped 135 points, or 1.12%, to 11883. The S&P 500 has fallen for seven of the past nine trading days.

What's driving markets

U.S. stocks recovered from an earlier decline on the first day of September -- historically the weakest month for equity returns -- with the Dow Jones Industrial Average and the S&P 500 snapping the four-day losing streak, following news of another COVID-19 lockdown in Chengdu, China, which has placed the southwestern city's 21 million residents into at least four days of citywide lockdown.

Meanwhile, semiconductor stocks like Nvidia (NVDA) and Advanced Micro Devices (AMD) slumped 7.7% and 3%, respectively, after the U.S. government restricted sales of certain products to China.

China's latest COVID restrictions "brought back an old nemesis for the market," said Marvin Loh, a senior global markets strategist at State Street. "We haven't forgotten that China hasn't fully reopened," Loh said.

But the lockdown wasn't the only piece of downbeat economic news out of China Thursday. The Caixin China purchasing managers index declined to 49.5 in August from 50.4 in July, falling below the 50-point mark that separates contraction from expansion, according to data released by Caixin Media Co. and S&P Global on Thursday.

Meanwhile, back in the U.S., investors digested Thursday's report on weekly jobless benefit claims, which showed that the number of Americans applying for unemployment benefits fell to its lowest level in nine weeks.

See: 'Bad news is good news' for the stock market right now --here's how that could end

The bond market also helped pressure stocks as the two-year Treasury yield hit a fresh 15-year high at 3.520%, while the 10-year Treasury yield climbed to 3.264%, its highest level since late June.

Rising bond yields helped push the U.S. dollar to fresh multi-decade highs, with the ICE U.S. Dollar Index up 0.9%, at 109.68.

"I think the Treasury market holds the key for the financial markets in general, and I do think that the upward move in yields will add further pressure to stocks, especially on growth stocks that have unsustainable valuations at the moment," said Tavi Costa, a portfolio manager at Crescat Capital.

Cryptocurrencies declined 1.1% on Thursday, with bitcoin tumbling back below $20,000 per coin.

The news of the lockdowns in China also weighed on oil prices, sending West Texas Intermediate crude futures for delivery in October retreated $16.9, or 1%, to settle at 1,709.30.

In other economic news, S&P Global US Manufacturing Purchasing Managers' Index posted 51.5 in August, broadly in line with the earlier released 'flash' estimate of 51.3, but down from 52.2 in July. The headline reading was the lowest since July 2020. The ISM manufacturing sector activity index held steady at 52.8% in August, with employment and new orders rising and inflation waning. The gauge had fallen to a 25-month low in July.

See: U.S. likely added 318,000 jobs this month -- but beware an August surprise

Looking ahead, investors are set to receive non-farm payrolls data for August on Friday, which could have an impact on stocks since more evidence of a robust labor market could inspire investors to brace for an even more aggressive pace of rate hikes from the Fed.

The Labor Department's monthly jobs report on Friday, which tracks employment across the public and private sectors, is expected to show the economy added 318,000 jobs in August, far fewer than the 528,000 jobs that were created in July, according to a survey of economists by The Wall Street Journal. The unemployment rate is seen steady at 3.5%, while the average hourly earnings are estimated to rise 0.4%, following a 0.5% rise in the previous month.

Tom Essaye, founder of the Sevens Report newsletter, said that Friday's employment report may carry risks for stock market.

"The labor market needs to show signs that it's on the path to returning to a state of relative balance, where job openings are roughly the same as the number of people looking for jobs--and if it does not show that, then concerns about a more hawkish-for-longer Fed will rise, and that's not good for stocks," said Essaye in a note on Thursday.

See:What does Friday's jobs report mean for the market? 'Too hot' and stocks could tumble, says market pro

Stocks in focus

-- Jamie Chisholm contributed to this article.

Hear Carl Icahn at the Best New Ideas in Money Festival on Sept. 21 and Sept. 22 in New York. The legendary trader will reveal his view on this year's wild market ride.

-Isabel Wang

(END) Dow Jones Newswires

September 01, 2022 16:27 ET (20:27 GMT)

Copyright (c) 2022 Dow Jones & Company, Inc.