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 fell 237.4 points, or 0.67%, to 35,282.72, the S&P 500 lost 29.29 points, or 0.64%, to 4,537.46 and the Nasdaq Composite 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 gained 4.40% after it reported a jump in second-quarter advertising revenue, topping Wall Street financial targets.
Microsoft (NASDAQ:MSFT), 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 lead the charge on Wall Street so far this year, with the index rising about 34%.
EBay 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 (NASDAQ:NVDA) and Micron (NASDAQ:MU) rose 0.99% and 5.48% respectively after Lam Research (NASDAQ:LRCX) forecast upbeat quarterly sales. Shares of Lam also advanced.
Southwest Airlines (NYSE:LUV) tumbled 8.94% after the airline posted a dip in second-quarter profit, while Royal Caribbean (NYSE:RCL) 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.