S&P 500, Nasdaq rise after weekly jobless claims reach 52-year low, PCE inflation jumps

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The S&P 500 and Nasdaq gained on Wednesday as technology stocks recovered some recent losses, with investors digesting a deluge of economic data before a holiday market closure.

Investors considered new Labor Department data showing weekly initial jobless claims fell far more than expected to their lowest level since November 1969, underscoring current tight labor market conditions. However, a separate print showed personal consumption expenditures (PCE) accelerated to rise by 5.0% in October, or the fastest rate since 1990, to add to recent signs of elevated price pressures.

The 10-year Treasury yield rose to near 1.7% amid these further signs of a firming economic recovery and persistently hot inflation data.

Rising interest rates have coincided with a selloff in tech and growth stocks this week, with the Nasdaq dropping 0.5% on Tuesday after Monday’s more than 1% decline.

“Initially, the markets were happy with the FOMC decision [for Fed Chair Jerome Powell’s renomination] in the sense that it was sort of a continuity play to some degree. But then rates started to rise, and a lot of folks read rising rates as negative for big-cap tech,” Stuart Kaiser, UBS head of equity derivatives research, told Yahoo Finance Live. “So I think the tradeoff we’re going to have here is that, tech has been market leadership — it’s obviously a strong earnings growth and free cash flow engine for U.S. equities — but if you believe it’s going to come under pressure from higher yields, then you end up with kind of a difficult Catch-22.”

According to other analysts, the market action this week — with a renewed rotation away from technology and growth stocks in the face of rising rates — could presage the investing environment for next year.

“[Tuesday] might be an example of what we see more of next year as the Fed moves into a mode of withdrawing liquidity from the markets and ending these pandemic-era policies, perhaps with rate hikes at the end of the year,” Jeffrey Kleintop, Charles Schwab chief global investment strategist, told Yahoo Finance Live. “And that means higher-valuation stocks, well, they tend to not do as well in environments of rising interest rates and tighter financial conditions.”

“So you may want to look to be in those sectors that are maybe trading closer to their average valuations, looking to leadership like financials, energy,” he added. “The only caveat to that is when we see these upticks in COVID cases globally, it tends to favor those lockdown defensives like technology.” 

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