The S&P 500 and Nasdaq gained on Wednesday as technology stocks recovered some recent losses, with investors digesting a deluge of economic data before a holiday market closure.
Investors considered new Labor Department data showing weekly initial jobless claims fell far more than expected to their lowest level since November 1969, underscoring current tight labor market conditions. However, a separate print showed personal consumption expenditures (PCE) accelerated to rise by 5.0% in October, or the fastest rate since 1990, to add to recent signs of elevated price pressures.
The 10-year Treasury yield rose to near 1.7% amid these further signs of a firming economic recovery and persistently hot inflation data.
Rising interest rates have coincided with a selloff in tech and growth stocks this week, with the Nasdaq dropping 0.5% on Tuesday after Monday's more than 1% decline.
"Initially, the markets were happy with the FOMC decision [for Fed Chair Jerome Powell's renomination] in the sense that it was sort of a continuity play to some degree. But then rates started to rise, and a lot of folks read rising rates as negative for big-cap tech," Stuart Kaiser, UBS head of equity derivatives research, told Yahoo Finance Live. "So I think the tradeoff we're going to have here is that, tech has been market leadership — it's obviously a strong earnings growth and free cash flow engine for U.S. equities — but if you believe it's going to come under pressure from higher yields, then you end up with kind of a difficult Catch-22."
According to other analysts, the market action this week — with a renewed rotation away from technology and growth stocks in the face of rising rates — could presage the investing environment for next year.
"[Tuesday] might be an example of what we see more of next year as the Fed moves into a mode of withdrawing liquidity from the markets and ending these pandemic-era policies, perhaps with rate hikes at the end of the year," Jeffrey Kleintop, Charles Schwab chief global investment strategist, told Yahoo Finance Live. "And that means higher-valuation stocks, well, they tend to not do as well in environments of rising interest rates and tighter financial conditions."
"So you may want to look to be in those sectors that are maybe trading closer to their average valuations, looking to leadership like financials, energy," he added. "The only caveat to that is when we see these upticks in COVID cases globally, it tends to favor those lockdown defensives like technology."
4:09 p.m. ET: Tech stocks recover, S&P 500 and Nasdaq end higher after jobless claims reach 52-year low, PCE inflation jumps
Here were the main moves in markets as of 4:09 p.m. ET:
S&P 500 (^GSPC): +10.76 (+0.23%) to 4,701.46
Dow (^DJI): -9.42 (-0.03%) to 35,804.38
Nasdaq (^IXIC): +70.09 (+0.44%) to 15,845.23
Crude (CL=F): -$0.25 (-0.32%) to $78.25 a barrel
Gold (GC=F): +$4.20 (+0.24%) to $1,788.00 per ounce
10-year Treasury (^TNX): -2.2 bps to yield 1.6450%
3:50 p.m. ET: FOMC minutes suggest central bank focused on 'flexibility' for policy path forward
The Federal Open Market Committee's November meeting minutes released Wednesday afternoon suggested monetary policymakers were committed to remaining flexible in their policy path forward and would adjust their asset-purchase tapering as needed as new economic data rolled in. The central bank had announced in early November that it was going to begin reducing its asset purchases at a rate of $15 billion per month in each of November and December, and then reassess the size of the reductions going forward.
"The Committee was prepared to adjust the pace of purchases if warranted by changes in the economic outlook and agreed that the post-meeting statement should say so," the minutes said. "Members agreed that the addition of this language would acknowledge the importance of maintaining flexibility to adjust the stance of policy as appropriate in response to changes in the Committee’s outlook for the labor market and inflation."
The November FOMC meeting did not come with an updated "dot plot" of individual members' projections on interest rates and other economic data. However, the minutes Wednesday noted that the members' "near-term outlook for inflation was revised up, as consumer food and energy prices had risen faster than expected and production bottlenecks and recent wage gains were seen as putting somewhat greater upward pressure on prices than had been anticipated."
12:02 p.m. ET: New home sales unexpectedly rose for a back-to-back month in October
New home sales rose by 0.4% in October to extend gain after a 7.1% increase in September, Commerce Department data showed on Wednesday. Consensus economists were looking for an unchanged reading last month, according to Bloomberg consensus data.
"The trend is picking up after a steep drop in the first half of the year, and the recent rising trend in mortgage applications points to clear increases over the next few months, with sales hitting 850K or so by January," Ian Shepherdson, chief economist at Pantheon Macroeconomics, wrote in a note Wednesday. "At the same time, inventory continues to rise rapidly, in contrast to the existing homes market. Supply in the three months October stood at 6.3 months, a bit higher than before COVID. As a result the surge in prices now looks very overcooked, and we expect a clear slowing in the first half of next year."
10:15 a.m. ET: Personal spending and income each top estimates in October despite
Personal spending increased in October even amid elevated prices, pointing to continued strength in the consumer despite lingering inflation.
Personal spending, which comprises about two-thirds of U.S. economic activity, rose by 1.3% in October compared to September, the Bureau of Economic Analysis said Wednesday. This was faster than the 0.6% rate posted for September and the 1.0% monthly increase expected, according to Bloomberg data. Real personal spending also accelerated during the month and topped estimates, rising by 0.7% from September's 0.3% increase.
Personal income, meanwhile, rebounded after dropping last month, rising by 0.5% versus the 0.2% increase anticipated. Income had fallen by 1.0% month-on-month in September, in part coming after federal enhanced unemployment benefits were phased out at the national level after Labor Day.
10:10 a.m. ET: Personal consumption expenditures rose at fastest pace since 1990
A new print on inflation rose at its fastest rate in more than three decades in October, adding to a bevy of data pointing to persistent inflationary pressures.
Personal consumption expenditures rose by 5.0% in October over last year, accelerating from September's 4.4% rise. The latest monthly print marked the fastest annual growth rate since 1990.
Excluding volatile food and energy prices, the core PCE deflator was up 4.1% in October, also accelerating from September's revised 3.7% increase. This was the fastest annual rise in the core PCE — the Fed's preferred inflation gauge — since 1991.
9:30 a.m. ET: Stocks open lower
Here's where markets were trading just before the opening bell:
S&P 500 (^GSPC): -21.59 (-0.46%) to 4,669.11
Dow (^DJI): -209.61 (-0.59%) to 35,604.19
Nasdaq (^IXIC): -114.56 (-0.73%) to 15,658.21
Crude (CL=F): -$0.23 (-0.29%) to $78.27 a barrel
Gold (GC=F): -$1.40 (-0.08%) to $1,782.40 per ounce
10-year Treasury (^TNX): +1.6 bps to yield 1.681%
8:45 a.m. ET: New jobless claims reach lowest in 52 years, Q3 GDP revised up
Economic data Wednesday morning came in mostly stronger-than-expected, with a new print on the labor market handily topping estimates while the second estimate of U.S. economic activity in the third quarter was revised higher.
The Labor Department reported Wednesday that new weekly jobless claims came in at 199,000 for the week ended Nov. 20. This was the lowest level since November 1969, and was much better than the 260,000 new claims expected.
Meanwhile, the Bureau of Economic Analysis released its second estimate on third-quarter U.S. gross domestic product. Quarterly GDP was revised up to a 2.1% annualized rate for the three months ended in September, or above the 2.0% rate previously reported. This still represented a marked slowdown from the prior quarter's 6.7% annualized rate of growth, however.
The improvement from the prior estimate came as personal consumption, the biggest component of U.S. economic activity, was revised up to a 1.7% pace, from the 1.6% rate previously reported.
7:16 a.m. ET Wednesday: Stock futures drop ahead of economic data
Here were the main moves in markets ahead of the opening bell
S&P 500 futures (ES=F): -13.75 points (-0.29%), to 4,674.75
Dow futures (YM=F): -119 points (-0.33%), to 35,647.00
Nasdaq futures (NQ=F): -59 points (-0.36%) to 16,253.00
Crude (CL=F): +$0.17 (+0.22%) to $78.67 a barrel
Gold (GC=F): +$3.40 (+0.19%) to $1,787.20 per ounce
10-year Treasury (^TNX): -0.5 bps to yield 1.66%
6:16 p.m. ET Tuesday: Stock futures open lower
Here's where markets were trading Tuesday evening:
S&P 500 futures (ES=F): -4.75 points (-0.1%), to 4,683.75
Dow futures (YM=F): -27 points (-0.08%), to 35,739.00
Nasdaq futures (NQ=F): -17.25 points (-0.11%) to 16,294.75
Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter