Stocks fell Thursday, turning around after three consecutive days of gains.
On Wednesday, both the S&P and the Dow had posted their biggest one-day gain in eight months.
Wednesday’s rally was fueled by Federal Reserve Chairman Jerome Powell’s remarks that interest rates are “just below the broad range of estimates of the level that would be neutral for the economy,” seemingly reversing prior statements from early October that rates were “a long way” from neutral. Markets took Powell’s statements to mean that the Federal Reserve may be tempering its more hawkish plans for continued rate hikes, and equities vaulted forward accordingly.
However, some analysts caution that Powell’s shift in rhetoric may not necessarily signal that the central bank will pare back on its plans for at least three more rate hikes next year.
“The broad range of estimates of neutral in the September forecasts was 2.5 to 3.5%, and the target range for the funds rate now is 2.0 to 2.25%,” Ian Shepherdson, chief economist for Pantheon Macroeconomics, wrote in a note. “The top of the target range, therefore, is only one hike away from the bottom of the range, but it remains three hikes from the middle of the range and five from the top.”
Minutes released Thursday detailing Federal Reserve officials’ meeting earlier in November pointed to another interest rate hike at the FOMC’s next meeting in December, which had been widely expected.
“Consistent with their judgment that a gradual approach to policy normalization remained appropriate, almost all participants expressed the view that another increase in the target range for the federal funds rate was likely to be warranted fairly soon if incoming information on the labor market and inflation was in line with or stronger than their current expectations,” the minutes said.
However, the minutes also noted that some participants felt that the federal funds rate “might currently be near its neutral level and that further increases in the federal funds rate could unduly slow the expansion of economic activity and put downward pressure on inflation and inflation expectations.”
With the Powell rally in the past, market participants shifted their attention to the G20 summit in Argentina, where a host of world leaders will convene through Saturday. One of the focal points will be Saturday’s dinner meeting between Trump and China’s President Xi Jinping, where the two are expected to discuss the escalating trade war between the world’s two largest economics. Larry Kudlow, top White House economic adviser, told reporters earlier this week that Trump is hoping for a breakthrough but is ready to impose more tariffs if the upcoming talks don’t produce a fair deal.
Stocks wobbled during trading Thursday following a slew of trade-related headlines. Equities rose slightly after President Donald Trump told reporters Thursday morning ET that he was “close to doing something” on trade with China. However, stocks turned lower shortly after following reports that White House trade adviser Peter Navarro, who has previously advocated a hawkish approach to trade policy with China, would be present at a meeting between Trump and Chinese President Xi Jinping.
Oil will also be a closely monitored topic during the G20 summit, as leaders from Russia and Saudi Arabia – two of the world’s biggest oil exporting countries – are expected to discuss oil policy. U.S. West Texas Intermediate crude (CL=F) settled at $51.45 per barrel on Thursday, after falling below $50 per barrel earlier in the day. Brent crude (BZ=F) settled at $59.51 per barrel after hitting a session low of $57.50.
Oil prices had fallen on Wednesday but turned around Thursday after Reuters reported that Russia may reduce oil output along with OPEC, which would help to alleviate some of the price-suppressing global supply glut. The EIA reported on Wednesday that U.S. stockpiles rose by 3.6 million barrels in the week ending November 23, exceeding expectations and marking the 10th consecutive week of inventory increases.
STOCKS: Investigators raid Deutsche Bank offices in money laundering probe
Deutsche Bank’s headquarters and offices in Frankfurt, Germany were raided by 170 police officers and investigators Thursday as part of a money laundering probe. Prosecutors said the raids targeted multiple currently unidentified Deutsche Bank employees, alleging that they may have helped clients create offshore companies in tax havens, and that others with the bank may have failed to report suspicions of money laundering. The investigation relates to the Panama Papers disclosures of 2016 that suggested that the bank may have been involved with money laundering by way of a subsidiary in the British Virgin Islands. Deutsche Bank said in a statement on Twitter that it is “cooperating fully with the authorities.” Shares of Deutsche Bank fell 4.85% to $9.41 each as of market close.
Abercrombie & Fitch Co. (ANF) jumped after beating Wall Street’s expectations on the top and bottom lines and for the key retail metric of same-store sales. The company’s CEO told Yahoo Finance that it will do $1 billion in online sales this year and has seen $675 million from its online business for the year-to-date. For the third quarter, the teen clothing company delivered adjusted earnings of 33 cents per share on revenue of $861 million, beating expectations of adjusted earnings of 20 cents per share on revenue of $853 million, according to Bloomberg data. Same-store sales rose 3%, ahead of estimates of 1.7%, and sales benefited from a 16% bump up in digital sales growth, the company reported. Abercrombie & Fitch’s stock jumped 20.74% to $20.67 per share as of market close.
Dollar Tree (DLTR) beat on profit but fell short of expectations for sales and guidance for the current quarter. Adjusted earnings for the third quarter were $1.18 per share, beating expectations of $1.14. However, revenue came in at $5.54 billion, slightly missing consensus expectations of $5.55 billion for the quarter. Dollar Tree said it foresees fourth-quarter EPS of between $1.86 to $1.95, whereas consensus estimates were for EPS of $2.01. The company added in a statement that it plans to open 350 new Dollar Tree and 200 new Family Dollar stores in the 2019 fiscal year. Shares of Dollar Tree rose 6.13% to $88.43 each as of market close.
Disney (DIS) boosted its semi-annual dividend to 88 cents per share from 84 cents per share previously. The next dividend payout will be January 10 to shareholders of record as of December 10. The payment brings Disney’s total dividends for the fiscal year to $1.72 per share. Disney earlier in November had reported results well above consensus expectations on the top and bottom lines. Shares of Disney rose 0.43% to $116.60 each as of market close.
Qualcomm (QCOM) announced Thursday that its corporate venture capital branch plans to invest up to $100 million in artificial intelligence. The chipmaker is looking to fund startups working on on-device AI and chiefly technology for autonomous cars, robotics and machine learning platforms. Qualcomm also said that its AI Fund has so far invested an undisclosed amount in AnyVision, a face, body and object recognition startup. Qualcomm’s stock rose 2.58% to $58.11 per share as of market close Thursday.
ECONOMY: New jobless claims increased by 10,000 last week
New unemployment claims rose by 10,000 for the week ending November 24 to 234,000, the Department of Labor said in a statement Thursday. Consensus expectations were for jobless claims to total 220,000 for the week, according to Bloomberg data. Continuing jobless claims for the week ending November 24 rose more-than-expected to 1.71 million, from a downwardly revised 1.66 million the week prior.
Personal income rose 0.5% in October, above consensus estimates of a 0.4% increase and last month’s pace of a 0.2% increase. Personal spending also edged higher in October, rising 0.6% for the month against expectations of 0.4%. Personal spending rose at a 0.2% pace in September.
The core personal consumption expenditures (PCE) index rose slightly less-than-expected in October at a rate of 1.8% over last year, or 10 basis points beneath consensus estimates and the reading from the month prior. Core PCE excludes volatile food and energy prices, and the Federal Reserve uses the metric as a signal of underlying price trends. Over last month, core PCE rose 0.1%, while consensus estimates were for an increase of 0.2%.
“The core PCE deflator increased by only 0.1% m/m in October and the annual core PCE inflation rate dropped back to a seven-month low of 1.8%, from 2.0%, leaving it once again below the Fed’s target,” Paul Ashworth, chief U.S. economist with Capital Economics, said in a note Thursday. “With unit labor cost growth unusually muted for this stage of the cycle and the stronger dollar putting downward pressure on imported goods prices (even when the impact of the tariffs are factored in), we expect core PCE inflation to remain close to its current level for some time.”
Pending home sales fell 2.6% month-over-month in October, the National Association of Realtors (NAR) said Thursday, coming in sharply below consensus expectations for an increase of 0.5% for the month, according to Bloomberg data. This marks the 10th consecutive month of declines in pending sales, which are based on contract signings. The results follow Wednesday’s report from the Commerce Department that new-home sales fell 8.9% in October. Lawrence Yun, NAR chief economist, attributed the declines to the recent rises in mortgage rates, which have “reduced the pool of eligible homebuyers.”
Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck
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