By Chuck Mikolajczak
NEW YORK (Reuters) - U.S. stocks were lower for a fifth straight session on Thursday as the latest signs the labor market remains robust solidified expectations the Federal Reserve will remain aggressive in hiking interest rates even at the risk of a potential recession.
Data showed weekly jobless claims fell more than expected to a two-month low last week and layoffs dropped in August, giving the Fed a cushion to continue raising rates to slow the labor market. Investors now await the monthly nonfarm payrolls report on Friday for more evidence on the labor market.
GRAPHIC: Jobless claims and challenger gray (https://graphics.reuters.com/USA-STOCKS/gdpzyxynovw/joblesschallenger.png)
Economists polled by Reuters see a jobs increase of 300,000, while Wells Fargo (NYSE:WFC) economist Jay Bryson revised his forecast for nonfarm payrolls to 375,000 from 325,000 and Morgan Stanley (NYSE:MS) economist Ellen Zentner expects August payrolls of 350,000.
Stocks have stumbled more than 6% during the five-session decline, its longest losing streak in about six weeks, which began after Fed Chair Jerome Powell signaled on Friday the central bank will remain aggressive raising rates to fight inflation even after consecutive hikes of 75 basis points, a message echoed by other Fed officials in recent days.
"It’s hard to believe the marketplace was that convinced that somehow the Fed was going to magically change course here, the genesis of the whole thing is the Powell speech," said Stephen Massocca, senior vice president at Wedbush Securities in San Francisco.
"Part of this might have just been that we had this equally surprising rally in July and if that rally was based off the notion the Fed was going to change course quickly ... now we could argue the rally that took place in July seemed to be based on some misconceived notion that got put to bed by the speech."
The Dow Jones Industrial Average rose 16.36 points, or 0.05%, to 31,526.79; the S&P 500 lost 9.45 points, or 0.24%, to 3,945.55; and the Nasdaq Composite dropped 115.88 points, or 0.98%, to 11,700.32.
As the 10-year Treasury yield rose to its highest level since June 21, technology and growth stocks such as Microsoft (NASDAQ:MSFT), down 1.30%, and Tesla (NASDAQ:TSLA), off 0.66%, were among the biggest drags on the benchmark S&P index.
Also weighing on the tech sector were chipmakers as the Philadelphia semiconductor index dropped 2.69%, led by a 8.92% drop in shares of Nvidia as the biggest weight on the S&P 500 and a 4.44% fall in Advanced Micro Devices (NASDAQ:AMD) after the United States imposed an export ban on some top AI chips to China.
Other economic data showed a further easing in price pressures, while manufacturing grew steadily in August, thanks to a rebound in employment and new orders.
Traders expect a 77.1% chance of a third straight 75 basis points increase in rates in September and expect it to peak around 3.977% in March 2023.
Investors are concerned the Fed could potentially make a policy mistake and raise rates too high, tilting the economy into a recession, even if inflation shows signs of abating.
Reflecting the defensive tone, Healthcare, consumer staples andutilitieslities were the leading sectors to the upside.
Investors have also become more concerned about corporate earnings in a rising rate environment that has also stoked a rally in the U.S. dollar. Hormel Foods Corp (NYSE:HRL) fell 7.16% after the packaged foods maker cut its full-year profit forecast.
Declining issues outnumbered advancing ones on the NYSE by a 3.92-to-1 ratio; on Nasdaq, a 2.60-to-1 ratio favored decliners.
The S&P 500 posted one new 52-week high and 35 new lows; the Nasdaq Composite recorded 21 new highs and 337 new lows.