U.S. stocks closed higher Thursday, recovering from two days of losses, as investors bet that signs this week of a slowing economy will prompt the Federal Reserve to lower interest rates for the third time this year at its late October meeting.
How are benchmarks performing?
The Dow Jones Industrial Average DJIA, +0.47% closed up 122.42 points, or 0.47%, at 26,201.04 while the S&P 500 index SPX, +0.80% rose 23.02 points, or 0.8% to 2,910.63, and the Nasdaq Composite index COMP, +1.12% rose 87.02 points to 7,872, a gain of 1.12%.
On Wednesday, the three main benchmarks had their worst single-session decline since Aug. 23, with the Dow falling 494.42 points, or 1.9%, to 26,078.62, the S&P 500 index losing 52.64 points or 1.8% to end at 2,887.61. The Nasdaq Composite Index declined 123.44 points, or 1.6%, to finish at 7,785.25.
Read: Dow, S&P 500, Nasdaq notch worst start to a quarter since 2008 financial crisis as recession fears accelerate
What’s driving the stock market?
The Institute for Supply Management’s index of the health U.S. services sector came in 52.6%, in September, down from 56.4% in August, suggesting growth is slowing rapidly just two days after ISM’s survey of the U.S. manufacturing sector showed it in outright contraction for the second month in a row.
“Net, net, look out below is what purchasing managers from services industries are shouting at the markets as the fears of recession continue to mount,” MUFG chief economist, Chris Rupkey wrote in a note. “This downturn is starting to spread and that means the tea leaf readers at the Fed are going to be teeing up a third rate cut this year when they next meet again at the end of this month.”
As a result investors bet the chances of another interest rate cut by the Federal Reserve at its late October meeting was now 90.3%, up from 77% on Wednesday and 49% a week ago, based on the CME’s Fedwatch indicator.
In other data, the Labor Department estimated that the number of Americans applying for new jobless benefits rose to a one-month high of 219,000, potentially affected by a three-week-old strike at General Motors Inc., though the number of jobless claims remain near historic lows.
On Wednesday a private-sector employment report from Automatic Data Processing on Wednesday showed that a modest 135,000 jobs were created in September, but investors are now focused on the U.S. Labor Department’s employment report for September due Friday. Economists polled by MarketWatch predict the U.S. added 147,000 new jobs last month, higher than the preliminary 130,000 gain in August.
Read: Another poor U.S. jobs report would add to Wall Street gloom: Here’s what to look for
Investors also were digesting news that the U.S. will impose some $7.5 billion in import duties on goods from the EU, including jetliners, Irish and Scotch whiskies, cheeses and hand tools, starting later this month, after the U.S. won World Trade Organization backing on Wednesday. U.S. - China trade talks are due to resume in mid-October to resolve the two-year old dispute between the world’s two largest economies that has slowed global economic growth.
Which stocks are in focus?
Shares of PepsiCo Inc. PEP, +2.98% rose Thursday after the beverage and snack maker said that third-quarter profit fell less than analysts expected, while revenue rose more than expected. The company reaffirmed its outlook for full-year sales growth of 4%.
Shares of Constellation Brands Inc. STZ, -6.06% were under pressure Thursday after the distributor of Corona beer swung to a loss in the second-quarter, following its recognition of losses of $484.4 million on its investment in the Canadian cannabis firm Canopy Growth Corp.
Bed Bath & Beyond Inc. BBBY, +2.69% reported second-quarter results Wednesday evening, disappointing investors with same-store sales that fell 6.7%, more than the 5.4% expected by Wall Street. Credit Suisse cut its price target on the stock to $14 from $18.
Shares of Tesla Inc. TSLA, -4.15% were down after the electric-car manufacturer reported Wednesday evening that it delivered 97,000 vehicles in the third-quarter, below the 99,000 vehicles expected by analysts polled by FactSet.
How are other markets trading?
U.S. Treasury yields extended their slide on Thursday. The yield on the 10-year U.S. Treasury note TMUBMUSD10Y, +0.16% fell 6 basis points to 1.53% in reaction to the ISM report on the U.S. service sector slowdown.
Gold prices were higher Thursday, for a third day of gains, as a drop in the September U.S. ISM services sector index fed worries about the health of the economy, boosting haven demand for the precious metal. Gold for December delivery GCZ19, +0.14% rallied, up about $5.90 to $1,513.80.
Oil futures dropped, with the U.S. benchmark on track for its eighth straight daily decline and another finish at its lowest in two months, as worries over global demand persist. West Texas Intermediate crude-oil for November delivery CLX19, +0.40% was down $1.21 to about $51.43 a barrel on the New York Mercantile Exchange, after falling 1.8% and settling at a 2-month low on Wednesday.
In Asia overnight Wednesday, Chinese equity benchmarks were closed for a holiday. Japan’s Nikkei 225 NIK, -0.09% meanwhile, fell 2%. European stocks traded mixed, with the Stoxx Europe 600 SXXP, -0.02% down 0.1%.