The stock market suffered a sharp reversal on Thursday, as investors awaited the speech of Federal Reserve Chairman Jerome Powell on Friday. The Dow Jones futures, along with S&P 500 futures and Nasdaq futures, were little changed in early trading on Friday, indicating a weak opening for the major indexes.
Stock Market Reversal
The stock market rally had a strong start on Thursday, with the Dow Jones Industrial Average rising more than 200 points and the Nasdaq Composite hitting a new record high. However, the gains quickly evaporated as the day progressed, and the indexes closed in the red.
The Dow Jones fell 0.5%, the S&P 500 lost 0.6%, and the Nasdaq dropped 0.6%. The small-cap Russell 2000 index plunged 1.1%. The volume was higher than Wednesday on both the NYSE and the Nasdaq, according to MarketSmith chart analysis.
The reversal was driven by a combination of factors, including rising bond yields, inflation fears, Delta variant concerns, and weak economic data. The 10-year Treasury yield rose to 1.34%, the highest level since mid-July. The core personal consumption expenditures (PCE) index, the Fed’s preferred inflation gauge, rose 3.6% year over year in July, matching the highest level since 1991.
The weekly jobless claims rose to 353,000, higher than expected and above the previous week’s figure of 349,000. The second estimate of the second-quarter GDP growth was unchanged at 6.6%, slightly below the consensus of 6.7%.
Powell’s Speech
All eyes are now on Powell’s speech at the Jackson Hole symposium, which will be delivered virtually at 10 a.m. ET on Friday. Investors are hoping that Powell will provide some clarity on the Fed’s plans to taper its $120 billion monthly bond-buying program, which has been supporting the economy and the markets during the pandemic.
The Fed has signaled that it is moving closer to tapering, but has not given a specific timeline or criteria for doing so. Some Fed officials have argued that tapering should start soon, given the strong recovery and high inflation. Others have cautioned that tapering should be delayed until more progress is made on the labor market and the Delta variant is contained.
Powell’s speech could have a significant impact on the market’s direction, as well as on the dollar, gold, and cryptocurrencies. If Powell hints at an earlier or faster tapering, it could trigger a sell-off in stocks and bonds, and a rally in the dollar. If Powell adopts a more dovish tone, it could boost stocks and bonds, and weaken the dollar.
Stock Market Leaders
Among the leading stocks in the stock market today, Apple (AAPL) fell 1.5% on Thursday, but remained above its 21-day exponential moving average. The iPhone maker is still in buy range from a 148 trendline buy point.
Microsoft (MSFT) dropped 1% on Thursday, but held above its 10-week line. The software giant is also in buy range from a 263.29 buy point of a flat base.
Tesla (TSLA) slid 2.5% on Thursday, breaking below its 50-day line. The electric vehicle maker is still forming a new base with a potential buy point of 780.89.
Netflix (NFLX) lost 1% on Thursday, but stayed above its 21-day line. The streaming giant is working on a new base with a possible buy point of 593.39.
Amazon (AMZN) declined 1% on Thursday, closing below its 200-day line for the first time since November. The e-commerce giant is shaping a new base with a potential buy point of 3773.18.