By Stan Choe
Wall Street is drifting amid mixed trading Thursday, threatening to send the S&P 500 to its first losing week in the last four following some discouraging reports on the economy.
The S&P 500 was 0.1% lower in midday trading, and it’s on pace for a 0.6% loss for the week. The U.S. stock market will be closed Friday in observance of Good Friday.
The Dow Jones Industrial Average was down 88 points, or 0.3%, at 33,393, as of 11:30 a.m. Eastern time, while the Nasdaq composite was 0.1% higher.
A report on Thursday morning showed that fewer U.S. workers filed for unemployment benefits last week, though the number was still higher than expected. The government changed how it tracks the numbers, which could cause some swings, and the number of workers getting continuing claims for benefits rose to the highest level since December 2021.
Thursday’s data followed a string of reports on the economy earlier in the week that were weaker than expected. That included everything from the number of job openings across the country to the strength of the U.S. manufacturing and services industries.
The spotlight swings next to the U.S. government’s comprehensive jobs report that will be released on Friday. Economists expect it to show employers added 244,000 jobs last month, down from 311,000 in February.
The economy has been slowing under the weight of much higher interest rates, and the big question is how much higher they will go.
The Fed is trying to pull off the delicate balancing act of raising rates just enough to drive down high inflation, but not so much that it causes a recession. It’s difficult because interest rates are a notoriously blunt tool, one that works only by slowing the entire economy and dragging down prices for stocks, bonds and other investments.
“Ultimately no one knows what it will take to bring inflation back down to the 2% target, but the odds are much higher that it will cause a recession – and even a significant recession – than most people are currently willing to believe,” said Chris Zaccarelli, chief investment officer of Independent Advisor Alliance.
The stock market has remained relatively resilient in the face of recession worries, even as analysts expect the upcoming earnings reporting season to show the worst drop since the spring of 2020. That was when the pandemic was wrecking the global economy.
Strategists at Goldman Sachs say they’re more likely to downgrade their forecasts for corporate profits in 2023 than to raise them given strains in the banking system that flared last month. The second- and third-largest U.S. bank failures in history rattled the industry, and the fear is that could lead to a pullback in lending that weakens the rest of the economy.
That has critics saying the stock market looks too expensive and could be setting itself up for disappointment if more discouraging data arrives. Given all the risks, high-quality bonds look to have a better risk-return trade-off than stocks over the next six to nine months, much like the tortoise over the hare, said Jason Draho, UBS Global Wealth Management's head of asset allocation Americas.
“Of course, sometimes the hare can temporarily pull ahead,” he said.
There has been more fear in the bond market, where Treasury yields have sunk sharply over the last month on worries about both a weaker economy and the banking system’s struggles.
The 10-year Treasury yield slipped to 3.28% from 3.31% late Wednesday and from more than 4% last month. It helps set rates for mortgages and other important loans.
The two-year yield is down to 3.77% from more than 5% last month. It tends to more closely track expectations for the Fed.
A slight majority of traders are betting the weaker economy and banking system’s woes will push the Fed to hold rates steady at its next meeting in May. If it does, that would be the first time it did not raise rates in more than a year.
On top of that, many traders are also betting the Fed will have to cut rates later this year in order to prop up the economy. The Fed, meanwhile, has been adamant so far in saying that it does not plan any rate cuts this year. Rate cuts can relax conditions for the economy and financial markets, but they could also give inflation more oxygen.
Inflation is still too high, and the Fed has said it does not want to risk letting up too early.
On Wall Street, Costco fell 2.6% after the warehouse membership retailer said an important measure of its sales fell in March as consumers pulled back spending on big-ticket items.
Levi Strauss fell 14.5% despite reporting stronger profit and revenue for the latest quarter than expected. Analysts said some of the sales may have been the result of discounting, pointing to squeezed profit margins.
In markets abroad, stock indexes rose modestly across much of Europe, while Asian stocks were mixed.
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AP Business Writers Yuri Kageyama and Matt Ott contributed.
