U.S. stocks pull back as S&P 500 heads for 3-day losing streak

What’s driving markets

Investors parsed a report on jobless claims that further supported the notion that the U.S. labor market is starting to feel the effects of the Federal Reserve’s interest-rate hikes.

See: Why Good Friday complicates how stock-market traders will digest March jobs report

During the seven days ended April 1, new jobless claims fell to 228,000 from a revised 246,000 in the prior week. The data showed claims topping the 200,000 level for the ninth week in a row, after changes to the seasonal adjustment formula.

“Jobless claims this morning came in a little higher than expected and that lends credence to the idea that the Fed’s rate hikes are beginning to cool down the labor market and slow down the economy,” said Chris Zaccarelli, chief investment officer of Independent Advisor Alliance, in emailed commentary.

“If the Fed can slow down the economy without causing a recession and thus bring down inflation, then they will be lauded for years to come, but if they end up crashing the economy, or significantly raising the unemployment rate, then they are going to come under intense criticism.”

Things seemed quiet as investors in the U.S. and Europe prepared for a long holiday weekend.

“As we approach the Easter weekend, risk-off sentiment has continued to grow in markets thanks to another round of weak data that’s added to fears about a potential US recession,” said Henry Allen, a strategist at Deutsche Bank.

With the exception of the Dow, U.S. stocks are on track to finish the week lower after three consecutive weekly gains for the S&P 500.

The S&P 500 closed at a seven-week high as recently as Monday as falling Treasury yields helped to boost equity prices. At the time, traders were hoping that signs of a slowing economy might encourage the Federal Reserve to begin trimming interest rates later this year, as slowing growth is expected to help suppress inflation.

But data released this week on job openings and the service sector helped reinforce the notion that the U.S. economy is slowing more quickly than previously expected, which has helped to stoke worries about slowing corporate earnings ahead of the start of the first-quarter earnings season, which begins next week with earnings from some of the largest U.S. banks.

Consequently, the S&P 500 has recorded a two-day 0.8% decline and the tech-heavy Nasdaq Composite has shed 1.8% over the past three sessions.

Investors are looking to Friday’s monthly jobs report, which will be released while the equity market is closed, to either challenge or confirm these expectations. The data will show how many jobs were created in the U.S. last month while also offering an updated reading on the unemployment rate.

See: Nasdaq and Dow have split in a way that isn’t healthy for stocks

Meanwhile, St. Louis Federal Reserve President James Bullard on Thursday downplayed concern over financial stress on the economic outlook.

The Fed’s response to the bank sector weakness has been “swift and appropriate,” he said and “appropriate monetary policy can continue to put downward pressure on inflation.” Data on the real economy has generally been stronger than expected during the first quarter “and inflation remains too high,” he said.

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