Major US indexes slipped again on Wednesday
US equities closed lower on Wednesday, extending a two-day slide as investors assessed warnings on lofty valuations and awaited fresh economic data that could shape Federal Reserve policy.
The Dow Jones Industrial Average fell 171.50 points, or 0.37%, to 46,121.28. The S&P 500 lost 18.94 points, or 0.28%, to finish at 6,637.98, while the Nasdaq Composite dropped 75.62 points, or 0.33%, to 22,497.86, according to Reuters.
The decline followed remarks from Fed chair Jerome Powell earlier in the week, when he signalled that US asset prices appeared fairly highly valued. He noted that a slowing labour market was outweighing inflation risks and confirmed that the Fed had cut interest rates for the first time this year.
Investors are awaiting Thursday’s weekly jobless claims and Friday’s personal consumption expenditures index, the central bank’s preferred inflation gauge. A CNBC report noted that Powell said that “in this less dynamic and somewhat softer labour market, the downside risks to employment have risen.”
Some analysts drew parallels to Alan Greenspan’s 1996 reference to “irrational exuberance.” Ron Albahary, chief investment officer at LNW in Philadelphia, told Reuters: “With the S&P pricing in 23-24 times expected earnings and expectations priced into that multiple of about 15% annualized earnings growth over the next five years, that sounds pretty rich to me.”
Valuation concerns were compounded by sharp moves in individual stocks. Freeport-McMoRan tumbled 17% after declaring force majeure at its Grasberg mine in Indonesia, while Oracle slipped 1.7% following reports it plans to raise $15 billion in bonds. Micron Technology lost 2.8% after reporting quarterly results.
By contrast, energy shares advanced as the S&P 500 energy index climbed 1.2%, tracking a seven-week high in oil prices after US crude inventories unexpectedly fell. Lithium Americas nearly doubled to close at $6.01 after Reuters reported the Trump administration was considering taking up to a 10% stake in the miner.
After the bell, Intel rose 1.6% in extended trading following a Bloomberg report that the chipmaker had approached Apple about a potential investment. The talks come after Nvidia pledged a $5 billion investment in Intel earlier this month.
Despite the pullback, strategists said broader sentiment remains intact. Salvatore Ruscitti of MRB Partners told CNBC he did not expect the slowdown in hiring to trigger a “self-reinforcing negative cycle.”
“On the jobless claims data, clearly it is a focus of the equity markets, especially with the Fed leaning more towards emphasizing the maximum employment part of its mandate,” Ruscitti said. “I think you would have to see a meaningful spike higher in weekly jobless claims to elicit a meaningful negative reaction in the equity market.”
