Thursday marked another day of choppy trading for stocks as investors considered a round of data that showed the U.S. economy remained resilient even in the face of the Federal Reserve's aggressive rate-hike campaign.
Ahead of this morning's open, data from the Labor Department showed weekly jobless claims fell for a fifth straight week, underscoring strength in the labor market. Additionally, the Commerce Department said retail sales rose 0.3% month-over-month in August, beating economists' expectations for a slight decline in consumer spending.
"This [retail sales] report is not good for the Fed's goals of slower inflation," says José Torres, senior economist at Interactive Brokers. "The Fed would like to see consumers slow down their spending and debt accumulation to slow down inflation. Higher rates provide an incentive to save, not to spend, and that's part of the reason why tighter monetary policy brings down demand and inflation." As such, Torres says the market is not only expecting a 75 basis-point rate hike at next week's Fed meeting, but one at the November meeting too. (A basis point is one-one hundredth of a percentage point.)
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By the close, the market had taken a decisive turn lower as the 10-year Treasury yield jumped 3.5 basis points to 3.447%. The tech-heavy Nasdaq Composite suffered the worst of it, slumping 1.4% to 11,552. However, the S&P 500 Index (-1.1% to 3,901) and the Dow Jones Industrial Average (-0.6% at 30,961) also ended solidly in the red.
Other news in the stock market today:
- The small-cap Russell 2000 shed 0.7% to 1,825.
- U.S. crude futures fell 3.8% to settle at $85.10 per barrel.
- Gold futures plummeted 1.9% to $1,677.30 an ounce, their lowest settlement price since April 3, 2020, according to Dow Jones Market Data.
- Bitcoin slipped 0.8% to $19,800.53. (Bitcoin trades 24 hours a day; prices reported here are as of 4 p.m.) Elsewhere, Ethereum spiraled 6.3% to $1,499.28 after the Ethereum Merge. "The merge paves the way for the world's second-largest cryptocurrency to become more energy-efficient and to operate on a 'proof-of-stake' network," says Edward Moya, senior market strategist at currency data provider OANDA. "Crypto traders are often used to 'sell the event' reactions in the cryptoverse and this Merge proved to be another example of just that."
- Adobe (ADBE) plunged 16.8% after the Creative Cloud parent said it is buying design software firm Figma in a cash-and-stock deal valued at roughly $20 billion. "This would be by far Adobe's largest-ever acquisition," says Scott Kessler, global sector lead for Technology Media and Telecommunications at Third Bridge. "About four years ago it bought Marketo for around $5 billion. Meanwhile, its closest peer and competitor in some ways, Salesforce.com (CRM), has been far more aggressive with M&A, most recently buying Slack last year in a deal valued at nearly $30 billion." ADBE also reported higher-than-expected fiscal third-quarter earnings of $3.40 per share on inline revenue of $4.4 billion.
- Netflix (NFLX) jumped 5.0% after Evercore ISI analyst Mark Mahaney upgraded the streaming stock to Outperform from Inline, the equivalents of Buy and Hold, respectively. The analyst believes NFLX's ad-supported offering and its clampdown on password sharing create "catalysts that can drive a material reacceleration of revenue growth." Mahaney adds that these catalysts are currently not priced into the stock.
Stocks Making the Most of Supply-Chain Woes
Supply-chain disruptions have been front and center for most of the pandemic and the possibility for another disturbance came back to the forefront this week as a potential railroad strike loomed. While the latest headlines suggest that the strike will be averted as both sides reach a tentative deal, the fragility of the system remains a concern for investors.
"Supply chains were built for efficiency in the past," says Tony DeSpirito, chief investment officer at BlackRock's U.S. Fundamental Active Equities. "And that meant the lowest cost, wherever it was." But COVID "underscored the need for resilience of supply chains," he adds. "And that's what we're starting to see – the trend away from globalization to onshoring or reshoring operations. It's essentially a shift from efficiency to resiliency." This shift is creating a tough short-term environment for investors, DeSpirito adds, but he reminds us that it helps to take a long-term perspective.
And over the long term, companies should benefit from a move to more reliable processes. With that in mind, we've come up with five stocks that stand to win as supply chains falter. Most of the list is made up of industrial stocks, but the tech sector makes an appearance too.
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