Shares on Wall Street Slide as Treasury Yields Ease Amid Cooling Economic Data

US labor market

fluctuate on Thursday after mixed earnings reports from major companies and indicators of a potential economic slowdown.

Early in the trading day, the S&P 500 declined by 0.3%, continuing a downward trend since reaching a record high last week. The Dow Jones Industrial Average fell 300 points (0.8%), and the Nasdaq composite slid by 0.4%.

Salesforce significantly contributed to the Dow’s decline with a steep 18.1% plunge. Despite surpassing profit estimates, the customer relationship management company reported lower-than-expected revenue for the recent quarter, and its revenue projections for the current quarter and fiscal year also fell short of Wall Street’s expectations.

Kohl’s experienced an even more severe drop of 25.8% after unexpectedly reporting a loss for the latest quarter, contrary to analysts’ predictions of a profit. The retailer attributed the decline to a reduction in sales compared to the previous year, primarily due to customers purchasing fewer clearance items, leading the company to adjust its sales and financial goals for the year.

Positive earnings reports from other companies provided some support to the market. Best Buy outperformed profit estimates, boosting its stock by 11.3% despite missing sales targets. Foot Locker surged 25.4% after reporting higher-than-expected profits, even though sales fell short of analysts’ forecasts.

Stocks received further support from a decline in Treasury yields. This provided relief after yields had risen earlier in the week due to concerns about weak demand for Treasury bonds following several U.S. government auctions, which had put pressure on various investments.

Yields decreased on Thursday after reports suggested the U.S. economy may not be as robust as previously anticipated. Wall Street anticipates a balanced economic cooling that will enable the Federal Reserve to combat high inflation without triggering a severe recession.

One report indicated that more U.S. workers filed for unemployment benefits last week than expected, although layoffs remain low compared to historical levels. Another report suggested that the overall growth of the U.S. economy in the recent quarter may have been less robust than initially thought.

A slowing economy could reinforce the Federal Reserve’s belief that inflation is on a sustainable path towards its 2% target, potentially leading to a reduction in the federal funds rate, which currently stands at its highest level in over two decades.

The yield on the 10-year Treasury fell to 4.56% from 4.62% late Wednesday, while the two-year yield, a more direct reflection of Fed expectations, dropped to 4.93% from 4.98%.

The U.S. government’s monthly update on a preferred inflation gauge by the Federal Reserve, scheduled for release on Friday, is a key data point to monitor. According to Chris Larkin, managing director of trading and investing at E-Trade from Morgan Stanley, this report could significantly influence market sentiment until the jobs report is released the following Friday.

In the meantime, the end of the earnings reporting season may continue to impact market movements. So far, profits for the beginning of 2024 have generally exceeded expectations.

In addition to Salesforce, other tech-related companies received positive market responses to their earnings reports. surged 13% after exceeding expectations for both profit and revenue in the latest quarter. HP rose 10.4% after narrowly beating earnings forecasts.

Retailers, typically reporting towards the end of each earnings season, are under scrutiny due to concerns about weakening consumer spending, a vital driver of the U.S. economy. High inflation continues to impact lower-income households.

Dollar General dipped 0.8% despite surpassing profit forecasts and slightly exceeding revenue expectations. The retailer, which caters to many lower-income customers, reported strong traffic growth at its stores during the quarter.

Build-A-Bear Workshop plummeted 12.1% after reporting larger-than-expected declines in revenue and earnings for the recent quarter. The company cited a “weaker spending environment” as a factor negatively affecting its business.

In international markets, indexes rose modestly in much of Europe but declined in Asia. Japan’s Nikkei 225 fell 1.3%, South Korea’s Kospi dropped 1.6%, and Hong Kong’s Hang Seng declined 1.3%.