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U.S. Stocks Giving Back Ground Following Yesterday's Rally

wallstreet oct17 04aug22 lt

After initially showing a lack of direction, stocks have moved to the downside over the course of morning trading on Thursday. The major averages have all slid into negative territory, giving back ground after yesterday's strong gains.

In recent trading, the major averages have fallen to new lows for the session. The Dow is down 148.10 points or 0.5 percent at 32,664.40, the Nasdaq is down 62.79 points or 0.5 percent at 12,605.36 and the S&P 500 is down 18.42 points or 0.4 percent at 4,136.75.

The pullback on Wall Street comes as some traders cash in on Wednesday's rally ahead of the release of the Labor Department's closely watched monthly jobs report on Friday.

The report is expected to show employment increased by 250,000 jobs in July after jumping by 372,000 jobs in June. The unemployment rate is expected to hold at 3.6 percent.

The strength of the jobs report could impact the outlook for interest rates, although the Federal Reserve will have much more data to digest before their next meeting in September.

"Equities might struggle to keep the rally going as investors continue to see economic data that suggests the economy is still holding up and as US-China tensions simmer," said Edward Moya, senior market analysis and OANDA.

"Wall Street has heard enough from the Fed to know that we are stuck in wait-and-see mode for the next 48 days," he added. "The September 21st FOMC decision will have a clear trajectory from both labor market and inflation data points."

A day ahead of the release of the more closely watched monthly jobs report, the Labor Department released a report showing a modest increase in first-time claims for U.S. unemployment benefits in the week ended July 30th.

The report showed initial jobless claims crept up to 260,000, an increase of 6,000 from the previous week's revised level of 254,000.

Economists had expected jobless claims to inch up to 259,000 from the 256,000 originally reported for the previous week.

The Commerce Department released a separate report this morning showing the U.S. trade deficit narrowed by more than expected in the month of June.

The report showed the trade deficit narrowed to $79.6 billion in June from a revised $84.9 billion in May. Economists had expected the trade deficit to shrink to $81.9 billion from the $85.5 billion originally reported for the previous month.

The decrease in the size of the trade deficit came as the value of exports surged by 1.7 percent to $260.8 billion, while the value of imports edged down by 0.3 percent to $340.4 billion.

Energy stocks are seeing further downside after bucking the upward trend on Wednesday, with a decrease by the price of crude oil weighing on the sector. Crude for September delivery is falling $0.74 to $89.92 a barrel.

Reflecting the weakness in the energy sector, the Philadelphia Oil Service Index is down by 1.7 percent, while the NYSE Arca Oil Index and the NYSE Arca Natural Gas Index are both down by 1.6 percent.

On the other hand, gold stocks are bounding along with the price of the precious metal. With gold for December delivery jumping $26.10 to $1,802.50 an ounce, the NYSE Arca Gold Bugs Index is surging by 3.4 percent.

Biotechnology stocks are also seeing notable strength on the day, extending the rally seen in the previous session. The NYSE Arca Biotechnology Index is climbing by 1.1 percent to its best intraday level in over three months.

In overseas trading, stock markets across the Asia-Pacific region moved mostly higher during trading on Thursday. Japan's Nikkei 225 Index climbed by 0.7 percent, while China's Shanghai Composite Index advanced by 0.8 percent.

Most European stocks have also moved to the upside on the day. The German DAX Index and the French CAC 40 Index are both by 0.5 percent, while the U.K.'s FTSE 100 Index is just above the unchanged line after the Bank of England announced its biggest interest rate hike since 1995.

In the bond market, treasuries have climbed into positive territory after ending the previous session little changed. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, is down by 6.5 basis points at 2.683 percent.

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