CO - Nasdaq S&P Dow fall after Fed selloff bank worries persist

2023-05-04 10:36:12 ET

Major averages opened lower on Thursday as investors gauged whether the Fed tightening cycle was really over.

Stock market news today: Markets slip after Fed selloff, bank worries persist

S&P 500 ( SP500 ) slid 0.9% , the Dow ( DJI ) declined 1.1 % , and the Nasdaq Composite ( COMP.IND ) came down 0.7% .

To paraphrase Obi-Wan Kenobi on May the Fourth Be With You day, the question is whether the market has taken its first step into a looser world.

Fed funds futures traders are convinced we're done, pricing in a 50/50 chance of a cut in July and an 85% likelihood rates are lower after the September meeting.

On one hand, Fed chief Jay Powell stressed data dependence in his Q&A, but several mentions of credit tightening raised recession concerns ( watch out for SLOOS next week ).

Higher "policy rates are now very impactful on the most interest sensitive parts of the economy, with a funds rate level that we haven’t seen since 2007," BlackRock's Rick Rieder wrote. "The pressure on commercial real estate, many of the cyclical parts of the economy, such as manufacturing, and clearly the banking system broadly, is palpable."

"Hence, it appears that the Fed is willing to pause, and in a sense to look the other way despite inflation still not at target (Core PCE currently resides at 4.6 year-over-year%), but any misbehavior, in terms of inflation shifting higher, will not be tolerated and could cause the Fed to continue its tightening process further."

Rates were lower, except for the shortest yields, which are still trading on the debt ceiling showdown. The 10-year Treasury yield ( US10Y ) fell 8 basis points to 3.32%. The 2-year yield ( US2Y ) fell 15 basis points to 3.79%.

Regional bank worries are still top of mind as First Horizon ( FHN ) plunged 38% after its deal with TD Bank ( TD ) was called off . The regional bank ETF ( KRE ) lost 8%.

On the economic front, weekly jobless claims came in at 242K slightly above the anticipated 240K figure.

At the same time, figures on Q1 productivity and unit labor costs hit. Data came in at 6.3% which was above the consensus 5.5% number.

Stock market and bond market latest

• Bonds Likely Offsides As Powell Dances Around A Pause
• The Fed's Latest Rate Decision: What Should Investors Watch Going Forward?

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