U.S. stocks recover early losses to trade mixed; Powell says Fed strongly supports more hikes

What’s driving markets

U.S. stocks have seen a modest pullback since the S&P 500 and Nasdaq Composite put in fresh 14-month highs late last week. If stocks finish lower, it will mark the first four-day losing streak for the S&P 500 since May 4, according to FactSet data.

Investors were digesting a flurry of news headlines, as short sellers tried to “break” the recent rally, said Joe Saluzzi, co-head of Equity Trading at Themis Trading, during a phone interview with MarketWatch.

“The momentum rally that we’ve had has been really impressive over the past few weeks,” he said. “It’s one of those rallies where people shake their heads and say ‘this makes no sense’. Those are the ones you have to be careful about,” he said. Saluzzi added that it appeared short sellers were making another attempt to “break” the rally.

In addition to the latest round of Fed Chair Powell’s Capitol Hill testimony, hawkish central banks were front of mind for investors on Thursday, as the Bank of England and a flurry of other central banks hiked interest rates to try and combat stubborn inflation, raising fresh doubts about the outlook for global economic growth.

Stocks in Europe sold off, with the STOXX Europe 600
SXXP,
-0.51%,
a benchmark of large-cap European companies, down 0.6% at 454.30.

“The global growth outlook is deteriorating quickly as major central banks are delivering more rate hikes and signaling that more tightening is coming. Aggressive tightening from here on out will torpedo the economy,” said Edward Moya, senior market analyst with OANDA, in emailed commentary.

Meanwhile, Powell said senior Fed officials largely expect the Fed to hike interest rates “a couple of times” later this year, although the timing of any hikes will depend on what the economic data show.

“We’re getting at least close to where our destination is — or where we think it is — and it makes sense to move at a careful pace,” Powell said before the Senate Banking Committee on Thursday.

“Overwhelmingly people on the committee do think there’s more rate hikes coming but we want to make them at a pace that allows us to see incoming information so we make good decisions.”

The Fed has raised its policy rate by five percentage points since March 2022, increasing the cost of borrowed money at the fastest pace since the 1980s. The aggressive campaign, undertaken to tame inflation, triggered a punishing selloff in both stocks and bonds in 2022.

While inflation has retreated from the 40-year highs reached last summer, Powell and other Fed officials have suggested that it’s not waning quickly enough to justify an end to the central bank’s hikes. The consumer price index, a closely watched inflation gauge, rose by a scant 0.1% in May.

A batch of fresh U.S. economic data arrived on Thursday, including a weekly update on the number of Americans applying for unemployment benefits, which came in flat at 264,000, still the highest level since late 2021.

Meanwhile, existing-home sales data showed activity in the U.S. rose slightly in May amid a shortage of homes for sale and high mortgage rates. However, the median price for an existing home fell 3.1%, the largest drop since December 2011.

Despite the threat of higher interest rates, stocks have powered higher since the beginning of 2023, thanks in large part to advances made by shares of a handful of tech stocks, especially those benefiting from the boom in artificial intelligence software, such as Nvidia Corp.
NVDA,
+0.20%,
Microsoft Corp.
MSFT,
+1.09%,
Apple Inc.
AAPL,
+1.15%
and Google parent Alphabet Inc.’s Class A
GOOGL,
+0.72%
and Class C
GOOG,
+0.68%.
The S&P 500 has risen more than 13% year-to-date, according to FactSet data. Many of these megacap tech names, including Tesla Inc., where helping to keep the Nasdaq in the green on Thursday.

In Europe, the BoE meeting was the day’s main event. To try and subdue the highest inflation among G-7 nations, the BoE opted to raise borrowing costs by 50 basis points. The decision marked the BoE’s 13th consecutive hike, and was larger than economists had expected. The U.K. currency GBPUSD was trading at $1.28 in recent trade, holding on to a marginal gain.

Earlier in the European trading day, the Swiss National Bank delivered a 25 basis-point interest-rate hike, slowing the pace of its policy tightening as was expected. However, SNB Chairman Thomas Jordan delivered a hawkish message that more tightening “cannot be ruled out.”

Norway’s central bank also lifted borrowing costs, as did Turkey’s central bank, which nearly doubled its main interest rate to 15%. Still, the hike wasn’t enough to boost the lira, which touched a fresh all-time low against the U.S. dollar, with one dollar
USDTRY,
+4.63%
fetching more than 24 lira.

Companies in focus

• Anheuser-Busch InBev SA stock
  BUD,
  +1.79%
  rose as Deutsche Bank analysts upgraded shares to buy from hold on Thursday, saying the beer maker was worth buying even if sales of Bud Light do not recover, following consumer backlash to a social-media campaign featuring trans activist Dylan Mulvaney in April.

• Tesla Inc. shares
  TSLA,
  +1.08%
  rebounded on Thursday just after notching their worst one-day percentage decline in two months. Shares were down 2.8% in premarket trading.

• Logitech Inc. stock
  LOGI,
  +1.67%
  rose after the Swiss maker of peripherals and software said its board of directors has approved a new share buyback program of up to $1 billion. The company’s shares have seen pressure recently amid reports one of its gamepads was used to steer the submersible that went missing while taking five people to see the Titanic wreck.

• Root Inc.
  ROOT,
  +36.69%
  rocketed toward a 10-month high, a day after soaring 59.8%, in the wake of a Wall Street Journal report that a potential buyer had emerged for the car-insurance company.

• Boeing Co.
  BA,
  -2.28%
  was trading lower after the Spirit AeroSystems Holdings Inc.
  SPR,
  -8.73%
  said that its unionized workers have voted for a strike, which is causing Spirit to suspend factory operations.

• Darden Restaurants
  DRI,
  -1.97%
  slid even though the owner of Olive Garden and Longhorn Steak House reported an 11.8% increase in fourth-quarter net income and a stronger-than-expected fiscal 2024 outlook.