US stocks fell on Thursday, led by the energy sector, as the strong momentum in the market subsided at the beginning of February.
The Dow Jones Industrial Average fell from a record high by 150 points and the S&P 500 fell 0.4%. Energy was the worst performing sector, down more than 1%. The tech-heavy Nasdaq Composite was down 0.3%.
After a sharp rise in stocks in early February, the market rally appeared to be developing. The Dow rose slightly to hit a record high on Wednesday, bringing its monthly gains close to 5%. The S&P 500 and Nasdaq closed lower on the previous session.
“We’ve pulled a lot of optimism forward and the market is trying to figure out where we’re going from here,” said Gregory Faranello, director of US interest rate trading at AmeriVet Securities. “The fiscal and monetary side of the equation appears to be priced in in the marketplace. Going forward, we need to see broader economic recovery, broader reopening and wider adoption of the vaccine.”
Investors also digested a worse than expected weekly jobless claims reading. Initial unemployment insurance claims were 793,000 last week, even with Covid-19 cases declining. Economists polled by Dow Jones expected a total of 760,000.
The market rebounded at a record level this month as investors expected additional fiscal relief measures to further support stocks. The S&P 500 is up 3.8% so far this year, while the Russell 2000 is up more than 14% since the beginning of the year as the run-down small caps performed positively with increasing optimism about the reopening.
“There are concerns that the combination of the reopening and potentially $ 1.5 trillion of incentives in the pipeline could result in overshoot that would translate into higher long bond yields and higher interest rates,” said Ross Mayfield, investment strategy analyst at Baird. “Then it becomes a headwind for the stock markets.”
The federal budget deficit is projected to be $ 2.3 trillion in fiscal 2021. This is a year-over-year decline but is still well above what the US saw before the Covid crisis, the Congressional Budget Office reported Thursday. The total does not include President Joe Biden’s proposed $ 1.9 trillion aid spending.
Federal Reserve Chairman Jerome Powell said Wednesday that the economy was facing challenges in the labor market and that monetary policy must therefore remain “patiently accommodating”. In a remark at the New York Economic Club, Powell said the employment picture is a “long way” from where it needs to be.
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