Stocks traded mixed on Thursday as investors contemplated the Federal Reserve's latest monetary policy decision and updated projections, which signaled a quicker path to higher interest rates than previously anticipated.
The Dow fell, while the S&P 500 and Nasdaq gained as tech shares outperformed. Treasury yields steadied after surging following the Fed decision on Wednesday, and the 10-year yield hovered just above 1.55%.
Each of the three major stock indexes ended Wednesday's session lower after the Fed's new projections pointed to two rate hikes by year-end 2023. Federal Open Market Committee members also upgraded their forecasts for economic growth and inflation, affirming market participants' concerns over sustainably higher prices. While the Fed left rates on hold at the conclusion of this month's meeting and kept the pace of asset purchases unchanged, market participants are now gearing up for a potentially less accommodative tilt to Fed policy.
"There was a more hawkish tone from the Federal Reserve, mostly coming from the Committee but [Fed Chair Jerome] Powell also offered an upbeat assessment of the economy with small steps toward the exit," Michelle Meyer, Bank of America U.S. Economist, said in a note Wednesday. "The big surprise came from the dots where the median expectation is now for 2 hikes in 2023 with only 2 dots away from 2022 also showing a hike."
"While Fed officials are talking about 'transitory' inflation, some clearly believe in greater persistence, which was reflected in upside risks to the PCE [personal consumption expenditures outlook] in the SEP [summary of economic projections]," she added.
On the other hand, however, the Fed also acknowledged that the labor force could be under pressure for some time, given the considerable difficulties the economy has had in recovering all of the jobs lost during the pandemic even as more reopenings take place. Powell said during his press conference Wednesday that the economy ultimately remained "a ways off" from reaching "substantial further progress" toward the Fed's goal of maximum employment that would signal a start to tapering.
But much of the employment data has been trending in the right direction, albeit with some moderation in the rate of improvements, and some lingering concerns over labor supply shortages. The Labor Department's weekly jobless claims report Thursday morning showed that new filings rose for the first time in seven weeks last week, unexpectedly rising from a pandemic-era low. However, in the coming weeks, more states will be rolling back enhanced federal unemployment benefits ahead of their official September expiration date, in a move that may bring down the total number of claimants across all programs. As of late May, more than 14.8 million Americans were claiming unemployment benefits of some form.
"Even with the eventual tapering of asset purchases, and subsequent moderate increase in interest rates, we think it’s clear that the backdrop for the economy will generate significant employment improvement," Rick Rieder, BlackRock's chief investment officer of global fixed income, said in an email.
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4:07 p.m. ET: Stocks mixed in wake of Fed update: Nasdaq jumps 0.9% as tech stocks leap while Dow drops 210 points, or 0.6%
Here were the main moves in markets as of 4:07 p.m. ET:
Gold (GC=F): -$87.90 (-4.72%) to $1,773.50 per ounce
10-year Treasury (^TNX): -5.8 bps to yield 1.5110%
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3:29 p.m. ET: Tech stocks rally, Nasdaq gains 1% as Amazon heads for highest closing level in nine months
The S&P 500 pulled back into positive territory with less than an hour left of the regular trading day, and the Nasdaq outperformed with a gain of more than 1%. Cyclical energy, financials and materials stocks lagged, however, and these sectors weighed on the S&P 500.
Amazon tracked toward its highest closing level since September, rallying more than 2.2% intraday. Each of the other FAANG names — including Facebook, Apple, Netflix and Alphabet — also advanced.
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1:32 p.m. ET: Fed will maintain normal business operations on Friday, Monday, central bank confirms
The central bank will remain open on Friday and Monday this year, maintaining normal operations in anticipation of President Joe Biden signing a bill to designate Juneteenth a federal holiday. Most government workers will receive a paid holiday on Friday in light of the event.
"We are notifying our customers that Federal Reserve Financial Services will remain open on Friday, June 18, 2021, and Monday, June 21, 2021," according to a statement. "This conforms to our standard practice for any federal holiday that falls on a Saturday."
"In the event the bill is signed into law, the Federal Reserve will determine how to adjust our schedule to reflect the new federal holiday in the years to come," it added.
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1:03 p.m. ET: Markets should expect 'some turbulence' in wake of updated Fed outlook
The S&P 500 and Dow sold off Thursday afternoon as investors continued to digest a more hawkish than anticipated outlook from the Federal Reserve, with a number of FOMC members expecting an increase in rates sooner than traders themselves were anticipating.
"With the way inflation has been coming in of late, it makes perfect sense that some people giving their dot plots would expect some increases in rates earlier than before," Tim Johnson, BNP Paribas Asset Management head of global multi-sector fixed Income, told Yahoo Finance. "So I'm not surprised, and I think the market has been really complacent and comfortable with the backstop of the Fed for a long time. We're in a transition phase now and there's going to be a little bit of turbulence."
“I think the market is just coming to grips with the fact that the Fed is not going to be extremely accommodative forever,” he added.
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12:58 p.m. ET: 23andMe shares trade on the Nasdaq following SPAC merger
A day earlier, the direct-to-consumer genetic testing and therapeutics company closed its merger with the special purpose acquisition company (SPAC) VG Acquisition Corp, which was started by Virgin Galactic founder Richard Branson.
The company saw growth slow down in its most recent full fiscal year, however, and posted revenue of $305.5 million during the fiscal year ended March 31, 2020, for a drop of 31% compared to the $440.9 million delivered over the same period ending in March 2019. Net losses totaled $250.9 million during the year ended March 31, 2020, widening compared to losses of $183.5 million a year earlier.
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12:47 p.m. ET: NYSE reportedly has no plans to close on Friday for Juneteenth
Should the Fed opt to close on Friday, U.S. private-sector banks would also be forced to make a quick decision over whether to observe the holiday with closures. This could in turn lead to a U.S. stock market closure, though stock exchanges including the New York Stock Exchange and Nasdaq do not need to follow federal holidays.
U.S. government workers are set to take Friday off on paid leave as President Joe Biden signs legislation to make Juneteenth a federal holiday. The holiday commemorates the end of slavery across the U.S., and a bill designating the day a federal holiday passed both the U.S. Senate and House this week. Companies including Nike and Target have also said they will give time off to employees or bonus pay in light of the holiday.
9:50 a.m. ET: 'It's going to be more and more challenging for investors to find pockets of attractive growth opportunities' in U.S. large-cap stocks: CIO
Even with Wednesday's pullback, the U.S. major stock indexes are still hovering near all-time highs, raising questions over where opportunities for more upside might lie.
According to at least one chief investment officer, investors may want to consider looking beyond U.S.-based stocks with large market capitalizations, given the amount of run-up many of these shares have already seen.
"It's going to be more and more challenging for investors to find pockets of attractive growth opportunities, at least as it relates to U.S. large cap stocks," Kevin Manh, Hennion & Wash chief investment officer, told Yahoo Finance. "But we still believe there's value and opportunities in smaller cap stocks. We believe it makes sense right now to consider investing overseas in international developed and emerging markets."
"And of course there are certain sectors that still provide attractive upside potential, notably biotech in particular," he added. "PwC is is forecasting a record year for biotech M&A activity and we know that there are more rare and chronic diseases that we know we need healthcare solutions for even beyond COVID-19."
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9:34 a.m. ET: Stocks open mixed as investors digest Fed decision
Here's where markets were trading Thursday morning:
Initial jobless claims came in at 412,000 for the week ended June 12. This was well above the 360,000 expected and 375,000 reported for the prior week. Before the pandemic, new claims were averaging a bit over 200,000 per month throughout 2019.
Continuing claims, reported on a one-week lag, also unexpectedly increased for the period ended June 5. These came in at 3.518 million verses the 3.425 million anticipated, according to Bloomberg consensus data.
Overall, 14.8 million Americans were still claiming benefits of some form, based on this week's report. The majority of these comprised workers, or 11.3 million, were claiming benefits through the federal crisis-era Pandemic Unemployment Assistance and Pandemic Emergency Unemployment Compensation.
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7:10 a.m. ET Thursday: Stock futures hold lower after Fed decision
Here's where markets were trading ahead of the opening bell on Thursday:
NEW YORK , NY - JUNE 02: Exterior view of the New York Stock Exchange and Wall St. as new company Organon start trading next thursday in New York on June 02 2021. Organon look to expand to provide treatments for other conditions unique to women, about 80% of the new company's revenues will come from outside the U.S (Photo by Kena Betancur/VIEWpress) ·(VIEW press via Getty Images)