Dow struggles to hold 35,000 level as stock market comes under pressure Wednesday

U.S. equity indexes traded lower Wednesday afternoon, with the Dow industrials briefly hitting the lowest level in two weeks, while the broader market was weighed down by selling in the energy, materials and information technology sectors.

Investors also were digesting comments from St. Louis Federal Reserve President James Bullard, who said the Fed should ease monetary programs as the most severe impact of the COVID pandemic recedes.

How are stock-index futures trading?

On Tuesday, the Dow industrials fell 269.09 points, or 0.8%, to finish at 35,100, the S&P 500 slipped 15.40 points, or 0.3%, to end at 4,520.03. The Nasdaq Composite gained 10.81 points, or 0.1%, to finish at 15,374.33.

What’s driving the market?

Stocks were under pressure in relatively light trade, following the Labor Day holiday, where markets were closed on Monday, and amid the end of Rosh Hashana, which concludes at sunset on Wednesday.

Traders were selling shares in the information technology, energy and materials sectors as uncertainty grows about the outlook for stocks after a strong second-quarter earnings period. Doubts also have emerged about the persistence of supportive monetary policies, credited with fueling record gains for stocks, now considered richly valued.

“Investors on the whole have enjoyed a fairly decent run this year, but now attention is turning from the post-lockdown spending splurge to how corporate earnings might fare next year,” said Russ Mould, investment director at AJ Bell, in a note to clients.

A clutch of Wall Street banks, including Goldman Sachs, have cut U.S. growth targets in the wake of weaker-than-expected jobs figures.

“There is a sense that some of the market forecasts have been too optimistic and so there could be some share-price disappointment unless we see GDP figures pick up and the COVID delta variant stops causing so much trouble,” Mould said.

On top of that, St. Louis Fed President Bullard said the central bank would press on with plans to ease monetary stimulus, and brushed aside worries over slowing employment, in an interview with the Financial Times that was published Wednesday.

“There is plenty of demand for workers and there are more job openings than there are unemployed workers,” Bullard told the FT. Getting the two “matched up” will contribute to a “very strong” labor market headed into 2022, he said.

“The big picture is that the taper will get going this year and will end sometime by the first half of next year,” Bullard was quoted as saying.

Bullard previously said the Fed should begin the tapering process sooner rather than later, with an eye toward ending purchases altogether by early next year.

In economic data, job openings rose to a record 10.9 million in July, the Labor Department said Wednesday, marking the fifth straight all-time monthly high and exceeding forecasts for a rise of 10 million. Job hires, however, slipped by 160,000 to 6.7 million in July. Separations rose 174,000 to 5.8 million.

While some strategists remain optimistic about the outlook for markets, investors also have been advised to be more discerning.

“The best days of cyclical value may be behind us, but it’s too early to turn fully to defensive themes. We are sticking with the reflation trade, but with a focus on identifying companies likely to experience upward earnings revisions,” wrote Lauren Goodwin, economist and portfolio strategist at New York Life Investments in a note published Wednesday.  

“We favor a global allocation, with an overweight to international developed equity. Value and small cap equities, with a focus on quality companies, should continue to thrive,” the strategist wrote.

Another issue that has been looming for investors is the government’s debt limit.

Treasury Secretary Janet Yellen said in a letter to congressional leaders Wednesday that Treasury could run out of room next month to keep paying the government’s bills unless Congress steps in to suspend or raise the federal borrowing limit.

“A delay that calls into question the federal government’s ability to meet all its obligations would likely cause irreparable damage to the U.S. economy and global financial markets,” Yellen wrote.

Read: Debt limit, social spending, infrastructure battles loom in ‘uniquely frenetic period’ for Congress

Looking ahead, investors will be watching for clues about the health of the U.S. economy from the Federal Reserve’s Beige Book, an anecdotal account of business conditions in the central bank’s 12 business districts. That report comes out at 2 p.m. Eastern Time.

Read: Stocks may fall 15% by year-end, warns Morgan Stanley. Here are some portfolio moves investors might consider.

Which companies are in focus?
How are other assets trading?
  • The yield on the 10-year U.S. Treasury note 

    slipped nearly 2 basis point to 1.34%. Yields move in the opposite direction of prices.

  • The ICE U.S. Dollar Index 
     a measure of the currency against a basket of six major rivals, rose 0.2%.

  • Oil futures rose, with the U.S. benchmark 

    advancing 0.9% to $68.99 a barrel on the New York Mercantile Exchange. Gold futures 

    fell 0.2% to trade at $1,794 an ounce.

  • European equities closed lower, with the Stoxx Europe 600 

    down 1.1% and the FTSE 100 

    ending Wednesday’s session off 0.8%. The European Central Bank will meet Thursday, and economists expect a modest reduction in the rate of bond purchases.

  • In Asia, the Shanghai Composite

     rose 1.5%, while the Hang Seng Index 

    slipped 0.1% and Japan’s Nikkei 225

     advanced 0.9%.

 Barbara Kollmeyer contributed reporting

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