Wall Street is fighting its Federal Reserve hangover that could lead to second straight day of losses after the central bank suggested Wednesday it could ease off the stimulus gas as early as year-end.
Stocks opened in the red but moderated their losses in early trading. The Dow was only down 0.1%, or some 31 points, after opening more than 200 points lower. Similarly, the S&P 500 pared its initial losses and was flat, while the Nasdaq Composite traded 0.1% lower following the initial drop.
On Wednesday, the minutes of the Fed’s July 27-28 meeting showed that the central bank expects that it will soon start tapering its monthly purchases of $80 billion in Treasury securities and $40 billion in mortgage-backed securities.
“Various participants commented that economic and financial conditions would likely warrant a reduction in coming months. Several others indicated, however, that a reduction in the pace of asset purchases was more likely to become appropriate early next year,” the minutes read.
Even though this is making investors nervous, it’s broadly in line with expectations. Plus, even tapered asset purchases would leave the Fed’s monetary policy rather loose.
Next week’s central bank symposium at Jackson Hole will be watched closely for any more signals for the eventual and inevitable taper.
The central bank has three meetings left in 2021, and analysts at Bank of America think the November meetings are when the Fed is most likely to clamp down on the amount of monthly purchases.
“September seems too early to start a taper since the minutes signaled FOMC agreement on providing ‘advance notice’ before making changes to balance sheet policy and may be too early to get a proper read on employment data since delta variant concerns emerged,” the analysts wrote in a note to clients.
The taper talk also lifted up the US dollar, which is in the green Thursday. The ICE US Dollar Index, which measures the greenback against some of its biggest rivals, traded about 0.2% higher.
Meanwhile, worries about the relentless spread of the Covid-19 Delta variant is weighing on economic recovery hopes around the world, sending commodities prices deep into the red.
US oil futures dropped to their lowest level in three months Thursday, trading up 2.5% at $63.75 per barrel.
In economic data, weekly jobless claims fell slightly more than expected to a new pandemic-era low of 348,000 with seasonal adjustments. Nearly a year and a half into the pandemic, the weekly claims for benefits still exceed their pre-Covid levels.
The rising Covid infections, along with seasonal distortions around the upcoming Labor Day holiday could mean more volatility ahead in the weekly numbers.
The number of people claiming benefits through the Pandemic Unemployment Assistance program was broadly unchanged at 109,379. That brought the total number of claims without seasonal adjustments to nearly 418,000.
The Philly Fed manufacturing index for August came in below expectations and dipped below its June level but still signaled a healthy expansion.
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