Stocks tick lower on Wall Street, slowing their big rally

Stocks were making tentative moves lower on Wall Street on Thursday following a deluge of news about the economy, interest rates and corporate profits.

The S&P 500 was down 0.5 per cent in early trading after two days of strong gains had brought it back to its highest level in nearly six weeks.

The Dow Jones Industrial Average was down 238 points, or 0.7 per cent, at 31,637, as of 10:15 a.m. Eastern time, and the Nasdaq composite was 0.2 per cent lower.

At the centre of this year’s sell-off for financial markets has been the world’s punishingly high inflation, and the moves made by central banks to squash it. On Thursday, the European Central Bank surprised markets when it raised its key interest rate by more than expected, its first increase in 11 years.

As with the US Federal Reserve, which is set to raise rates next week for a fourth time this year, the hope is that higher rates will slow the economy enough to beat back high inflation. The risk is that higher rates push down on investment prices, and too-aggressive hikes could cause a recession.

In the US, some areas of the economy have already begun to slow, and reports on Thursday showed more softening.

Rising layoffs had the highest number of workers filing for unemployment benefits last week in eight months, though it remains low, compared with history. A separate report showed manufacturing in the mid-Atlantic region weakened by significantly more than economists expected.

The discouraging data helped pull Treasury yields lower and could steer the Federal Reserve towards less aggressive hikes on interest rates. That in turn could help support stocks.

The two-year Treasury yield, which tends to move with expectations for the Fed, slumped to 3.18 per cent from 3.25 per cent late Wednesday. The 10-year yield, which influences mortgage rates, fell to 2.96 per cent from 3.03 per cent.

The primary reason stocks have rallied this week on Wall Street has been strong profit reports from big US companies. If they continue to deliver strong earnings despite high inflation, that would prop up one of the two main levers that set stock prices. The other depends on where interest rates go.

Tesla climbed 5.8 per cent in the first trading after the electric-vehicle maker reported results for the spring that were better than analysts expected.

Philip Morris International, the tobacco company, jumped 5.4 per cent after reporting stronger profit than expected. Steelmaker Nucor gained 3.3 per cent after its results likewise topped forecasts.

On the losing side were airlines, following some disappointing reports.

United Airlines tumbled 8.8 per cent after its profit and revenue fell short of expectations.

Alaska Air got caught in the downdraft, and its shares fell 2.6 per cent despite reporting stronger results than expected.

AT&T sank 9.5 per cent even though it also reported better profit and revenue than Wall Street forecast. It cut its forecast for the amount of cash it will generate this year.

European stocks were mostly lower, with several events keeping the continent in the market’s spotlight beyond the European Central Bank’s momentous moves.

A key pipeline carrying natural gas into the region reopened on Thursday, though worries continue that Russia may restrict supplies to punish allies of Ukraine. In Italy, Premier Mario Draghi resigned after his ruling coalition fell apart. That adds more uncertainty as Europe contends with the war in Ukraine, high inflation, and the potential for trouble in Europe’s bond markets.

In Asia, Tokyo’s Nikkei 225 rose 0.4 per cent after the Bank of Japan announced no major policy changes after a two-day meeting, as was widely expected. It’s been a holdout in the global rush to raise interest rates.

– AP