Wall Street extended its rally into a fifth straight day on Thursday in a session of whipsaw trading due to mixed comments from Federal Reserve Chairman Jerome Powell, while a warning from Macy’s thrashed retail stocks.
Powell reiterated the views of other policymakers that the Fed would be patient about interest rate hikes. However, major stock indexes temporarily moved into negative territory after Powell said the bank’s balance sheet would be “substantially smaller,” and after he raised concerns about the size of our national debt.
The S&P 500 index is now up over 10 percent from a 20-month low it touched around Christmas, due in no small part to the hope for a U.S.-Chinese trade deal, which eased some worries over the impact of the dispute on global growth. The benchmark index’s five-day winning streak is its longest since September.
Trade-related optimism faded somewhat as China offered little in the way of details on key issues such as forced technology transfers, intellectual property rights, tariff barriers and cyber-attacks.
Meanwhile, Macy’s and American Airlines added to concerns that growth of corporate profits would slow. Macy’s fell 17.69 percent and pulled down other retailers after the retail operator reduced its same-store sales forecast for the full year because of weak demand during mid-December.
S&P 500 companies on average are expected to chalk up 14.5 percent growth in earnings per share as they report their December-quarter results over the next few weeks, according to IBES data from Refinitiv.
However, expectations for growth in 2019 are at 6.4 percent, down from an expectation of 7.3 percent on January 1.
The trade-sensitive industrial sector index rose 1.44 percent, lifted by Boeing, which gained 2.55 percent after the Air Force accepted its long-delayed KC-46 air tanker.
American Airlines fell 4.13 percent after the nation’s largest airline reduced its fourth-quarter earnings and unit revenue forecasts. That weighed on other airline shares as well.
Ten out of 11 S&P sector indexes rose, led by a 1.55 percent increase in the real estate sector, with the consumer discretionary index ending down 0.23 percent.
The Federal Reserve bought no agency mortgage-backed securities in the week from Jan. 3 to Jan. 9, compared with none purchased the previous week, the New York Federal Reserve Bank said on Thursday.
In a move to help the housing market begun in October 2011, the U.S. central bank has been using funds from principal payments on the agency debt and agency mortgage-backed securities, or MBS, it holds to reinvest in agency MBS.
The New York Fed said on its website the Fed sold no mortgage securities guaranteed by Fannie Mae FNMA.OB, Freddie Mac FMCC.OB or the Government National Mortgage Association in the latest week. It sold none the prior week.
Approximately 7.3 billion shares changed hands on the major domestic equity exchanges on Thursday, as compared with the 8.9 billion share average over the past 20 trading days.
Unemployment Benefit Claims Fall
The Labor Department reported on Thursday morning that the number of new applications for jobless benefits fell more than expected last week, pointing to sustained labor market strength that could further ease concerns about the economy’s health.
The report came on the heels of a report last week indicating employers hired the most workers in 10 months during December and increased wages for their workers.
Surveys showing steep declines in consumer and manufacturing activity in December had stoked fears that the economy was rapidly losing momentum.
Initial claims for state unemployment benefits fell by 17,000 claims to a seasonally adjusted 216,000 claims for the week ended January 5. Data for the prior week was revised up to show 2,000 more applications received than previously reported. The Labor Department said only claims for Puerto Rico were estimated last week.
Claims were raised in the week ending Dec. 29 as workers furloughed because of a partial shutdown of the federal government applied for benefits.
Claims by federal workers are reported separately and with a one-week lag. The number of federal employees filing for jobless benefits increased by 3,831 to 4,760 in the week ending Dec. 29.
Furloughed federal government workers can submit claims for unemployment benefits, but payment would depend on whether Congress decides to pay their salaries retroactively.
The four-week moving average of initial claims, considered a better measure of labor market trends as it irons out week-to-week volatility, rose by 2,500 to 221,750 claims last week.
The economy created 312,000 jobs in December. The unemployment rate rose two-tenths of a percentage point to 3.9 percent as some unemployed Americans piled into the labor market, confident of their job prospects.
While labor market strength has helped to calm fears that the economy, tighter financial market conditions and slowing global growth could make the Federal Reserve cautious about raising interest rates this year.