Wall Street closes down, Dow snaps longest winning streak since 1987

It was another day that the indexes were all up in the morning, the Dow up some 120 points, then fell through the floor starting at 1 pm for the whole market to close in the red, the Dow 3-digits in the red. Today’s crash is attributed to the Bank of Japan raising its rates which sent U.S. yields up, which brought the Dow down, smashing 13 straight days of gains, its biggest streak since 1987.  

The ECB also raised its rates for the 9^th straight time and the Fed delivered the expected ¼ point hike but did leave the door open for a September hike, while investors had hopes for a pause.  The Fed did state that there was no longer a forecast for recession.  GDP grew substantially above forecast at 2.4% and other strong data caused investors to reassess their positioning. Per the CBOE, volume was 11.9 billion vs the 4-week average of 10.3 billion.

Wall Street closes down, Dow snaps longest winning streak since 1987

By Carolina Mandl and Herbert Lash

Thu July 27, 2023 4:25 PM

DJ: 35,520.12  +82.05       NAS: 14,127.28  -17.27         S&P: 4,566.75  -0.71        7/26

DJ: 35,520.12  +82.05       NAS: 14,127.28  -17.27         S&P: 4,566.75  -0.71        7/26

July 27 (Reuters) - U.S. stocks ended lower on Thursday after news that the Bank of Japan will allow long-term interest rates to rise sent U.S. yields higher, snapping the longest winning streak for the Dow since 1987.  The Nikkei newspaper reported the central bank will maintain its 0.5% cap for the 10-year government bond yield, but discuss allowing long-term interest rates to rise above that level by a certain degree. Reuters confirmed the central bank may make minor tweaks to extend the lifespan of its yield control policy.  Michael Green, chief investment strategist at Simplify Asset Management, said reports of the Bank of Japan's plans were the biggest driver behind Wall Street's performance on Thursday.  Higher rates in Japan pushed the U.S. 10-year yield over 4% and reduced the attractiveness of stocks.

The Dow Jones Industrial Average (.DJI) fell 237.4 points, or 0.67%, to 35,282.72, the S&P 500 (.SPX) lost 29.29 points, or 0.64%, to 4,537.46 and the Nasdaq Composite (.IXIC) dropped 77.18 points, or 0.55%, to 14,050.11. 

On Wednesday, the U.S. Federal Reserve raised interest rates by 25 basis points as expected. Traders now only see a 20% chance that the Fed could surprise with a quarter-point increase in September. Fed Chair Jerome Powell said on Wednesday that Fed staff are no longer forecasting a U.S. recession, but did not rule out another rate hike, saying the Fed would follow future economic data.

On Thursday, a Commerce Department report showed the U.S. economy grew faster than expected in the latest quarter, with an advance gross domestic product reading of 2.4%, above the 1.8% forecast by economists polled by Reuters.  Kim Rupert, managing director of global fixed income at Action Economics in San Francisco, said the strong economic data earlier in the day also made the market reassess its positioning after the Federal Reserve slightly upgraded its growth outlook on Wednesday.  "The markets are looking at the increased potential for another Fed rate hike that had largely been priced out. Now it's being priced back in," said Rupert, who expects a Fed rate hike in September.

Meta (META.O) gained 4.40% after it reported a jump in second-quarter advertising revenue, topping Wall Street financial targets.  Microsoft, which on Tuesday surpassed estimates for quarterly revenue and profit, closed down 2.09%, as it laid out an aggressive spending plan to meet demand for its new artificial intelligence (AI)-powered services.  Outsized gains in megacap growth stocks have helped the Nasdaq (.IXIC) lead the charge on Wall Street so far this year, with the index rising about 34%.

EBay (EBAY.O) forecast third-quarter profit below market expectations as the e-commerce platform spent more to bolster categories such as auto parts, refurbished goods and collectibles, sending its shares down 10.53%.  Chipmakers Nvidia (NVDA.O) and Micron (MU.O) rose 0.99% and 5.48% respectively after Lam Research (LRCX.O) forecast upbeat quarterly sales. Shares of Lam also advanced.  Southwest Airlines (LUV.N) tumbled 8.94% after the airline posted a dip in second-quarter profit, while Royal Caribbean (RCL.N) surged after the cruise operator lifted its annual profit forecast. 

Elsewhere, the European Central Bank raised interest rates for the ninth consecutive time and kept the door open to further tightening.