The major domestic equity indexes were all higher on Thursday after two days of declines, as energy shares rebounded with oil on concerns of a supply disruption following attacks on two tankers in the Gulf of Oman.
U.S. Secretary of State Mike Pompeo said the United States has assessed that Iran is responsible for the attacks, which occurred near Iran and the Strait of Hormuz, through which a fifth of global oil consumption passes.
Oil futures settled more than 2% higher, while the S&P 500 energy index gaining 1.3%, the most of the 11 major sectors. While the gains in energy shares helped the market, the tanker attacks added to potential worries for investors.
Stocks have had a strong run in June so far on hopes the Federal Reserve will act to counter a slowing global economy due to the escalating trade war with China. The benchmark S&P 500 index is up about 5% so far for the month.
At the same time caution ahead of the Fed meeting next week and the Group of 20 summit at the end of the month limited the day’s advance. Markets have been anticipating an interest rate cut at some point this year.
Disney gained 4.4%, giving the S&P 500 its best boost after Morgan Stanley raised its forecast for Disney Plus subscriber growth.
On the trade front, there were doubts of any improvement in what President Donald Trump called “testy” trade relations with China in the run-up to the G20.
Several companies including furniture chain RH cited the potential impact of higher tariffs on their businesses in reports after the bell Wednesday, though RH said it has taken steps to mitigate the impact of tariffs and raised its outlook for the year.
Twitter fell 3.1% after brokerage Moffett Nathanson said it expects the social media company’s costs to rise and revenue growth to slow.
Approximately 5.99 billion shares changed hands on the major domestic equity exchanges, as compared to the 6.87 billion average over the past 20 trading days.
Day’s Economic News
There was an increase in the number of new applications for unemployment benefits last week, that in turn will raise the probability that the labor market is losing steam, given that job growth slowed sharply in May.
Other data on Thursday showed import prices fell by the most in five months in May amid a broad decline in the cost of goods, the latest indication of muted inflation pressures. Signs of a slowing labor market and tepid inflation strengthen the case for the Federal Reserve to cut interest rates this year.
The Fed is scheduled to meet on June 18-19 against a backdrop of rising trade tensions. The current consensus is that we will likely see at least two rate cuts by the end of 2019. A rate cut is not expected next Wednesday.
Initial claims for state unemployment benefits rose 3,000 to a seasonally adjusted 222,000 for the week ended June 8, the Labor Department said on Thursday.
While layoffs remain relatively low, the third straight weekly increase in claims suggests some softening in labor market conditions. The four-week moving average of claims, considered a better measure of labor market trends as it irons out week-to-week volatility, rose 2,500 to 217,750 last week.
The economy created only 75,000 jobs in May, with annual wages increasing at their slowest pace in eight months, according to government data released last week.
The slowdown in hiring, which occurred before a recent escalation in trade tensions between the United States and China, raised fears of a sharp deceleration in economic growth. The claims data is being closely monitored for signs of any fallout from the trade war.
Data so far have suggested a sharp slowdown in economic growth in the second quarter after a temporary improvement coming from exports and an accumulation of inventory early in the year. In addition to the sharp moderation in hiring last month, manufacturing production, exports and home sales dropped in April, while consumer spending cooled.
The Atlanta Fed is forecasting gross domestic product increasing at a 1.4% annualized rate in the April-June quarter. The economy grew at a 3.1% pace in the first quarter.
The Labor Department also reported that import prices fell 0.3% last month, the largest decline since last December, after edging up 0.1% in April.
For the 12 months through May, import prices fell 1.5% after falling 0.3% in April. The report came on the heels of data on Wednesday showing consumer prices remained tame in May.
Import prices exclude duties. In May, prices for imported fuels and lubricants declined 1.0% after rising 1.7% percent in the prior month. Imported food prices dropped 0.8% last month after rising 2.7% during April.
Excluding fuels and food, import prices fell 0.2% in May after falling 0.3% in the prior month. So-called core import prices decreased 1.5% in the 12 months through May. Though the dollar has weakened somewhat, its gains last year continue to depress core import prices.
The cost of imported capital goods declined 0.1% last month. Prices for imported consumer goods excluding automobiles was unchanged. The cost of goods imported from China edged down 0.1% last month after falling 0.2% in April. Prices fell 1.4% in the 12 months through May, the largest decline since February 2017.
The report also showed export prices falling 0.2% in May, with prices for both agricultural and nonagricultural products dropping. Export prices were up 0.1% in April. They fell 0.7% on a year-on-year basis in May after gaining 0.2% in April. Soybean prices were down 20.6% year-on-year.