US stocks came under pressure on Thursday as investors digested a new investment ban from the Biden administration, new economic data pointing to a strengthening labor market and prospects the Federal Reserve may begin to consider scaling back its political support as inflationary pressures intensify.
The tech-rich Nasdaq Composite led the day in losses, closing down 1%. The blue-chip S&P 500 index, meanwhile, lost 0.4%.
Major tech stocks, including Facebook and Apple, fell about 1% as trading in New York City ended, while Google’s parent company Alphabet slipped 0.7%. These growth stocks, which don’t pay generous dividends and instead rely on rising valuations, seem less attractive to investors as prices rise.
The weakness on Wall Street came as global food prices rose by the highest margin in a decade in May, according to the Food and Agriculture Organization of the United Nations monthly food price index. . Data released Thursday also showed that initial jobless claims fell to a cycle low last week in the United States, indicating that the labor market continues to recover.
Investors have also been forced to grapple with the Biden administration’s announcement banning U.S. entities from investing in dozens of Chinese defense and surveillance technology companies.
“The wall of worry is only growing,” said Garrett Melson, portfolio strategist at Natixis Investment Managers.
Across the Atlantic, the regional benchmark Stoxx Europe 600 closed 0.1% lower, ending two consecutive record days. The CAC 40 in Paris fell 0.2% while the Xetra Dax in Frankfurt rose 0.2% to close the session at another all-time high.
London’s FTSE 100 fell 0.6%, led by National Grid, BT and Kingfisher. National Grid and Kingfisher were trading ex-dividend, meaning investors who buy the shares today were not entitled to the next round of shareholder payments.
Airline stocks also fell when the UK announced Portugal was no longer on its ‘green list’ of non-quarantine travel. International Airlines Group and easyJet lost more than 5%, while Ryanair fell 4.5%.
Investors have also been paying attention to recent comments from Fed officials on their take on monetary policy. Some central bank policymakers recently approved the initiation of talks on whether to end the $ 120 billion monthly asset purchase program. Friday’s monthly U.S. employment report could provide a snapshot of the timeline, market participants said.
“For now, we have emergency tax policies in place as the medical emergency passes,” said Roger Lee, head of UK equity strategy at Investec. “I think the market is grappling with how the Federal Reserve is going to handle this.”
On Tuesday, James Bullard, chairman of the St. Louis Federal Reserve, said the US job market was tighter than it looked. The strengthening labor market, coupled with increasing signs of inflation, could mean that the central bank will ultimately have to speed up the timeline to slowly withdraw its bond-buying program, investors said.
Lee added that he would pay close attention to wage growth data on Friday to see whether this current inflation surge was structural or not. “If you start to see it increase, then it becomes more difficult to say that inflation is transient,” he said.
US President Joe Biden said last week that the wage hike “is not a bug, but a feature,” speaking to US businesses during a visit to Cleveland, Ohio.
Initial data on Thursday’s jobless claims was also encouraging, said Scott Ruesterholz, portfolio manager at Insight Investment. “While we don’t see action as imminent, we expect the economy to improve enough for the Fed to announce a cut before the end of the year,” he added.
In currencies, the US dollar climbed 0.6 percent against a basket of peers, bringing the greenback close to its highest level since mid-May.
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