Stock Market Falls On Low Jobless Claims And Weak Earnings From Consumer And Financial Stocks

The stock market fell Thursday morning after jobless claims dipped and housing permits came in weaker than expected. Mixed earnings reports from Alcoa (AA), Allstate (ALL), Proctor & Gamble (PG) and several financial stocks dragged on broad benchmarks.

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Netflix (NFLX) shares lost more than 2% ahead of earnings due out after the market close. The report will kick off fourth-quarter tech earnings.

The Nasdaq composite lost 0.9% while the S&P 500 dipped 0.6%. The Dow Jones Industrial Average lost 0.6%. The small-cap Russell 2000 index fell 0.9%.

Volume fell on the Nasdaq and the NYSE vs. the same time on Wednesday.

The yield on the benchmark 10-year Treasury note rose 3 basis points to 3.40%. Crude oil prices rose 0.5% to $79.90 per barrel.

Initial unemployment claims dropped to 190,000 vs. 205,000 in the previous week. Claims were expected to rise to 215,000, per Econoday estimates.

Meanwhile, the Philly Fed index came in at -8.9 in January, better than the expected -10.3 reading and higher compared to a -13.8 reading in December.

Economic News Weighs On Stock Market

“The news of layoffs from tech firms may be the canary in the coalmine – in terms of forecasting a recession – or it may turn out to be a correction of the excesses that occurred during the pandemic,” said Chris Zaccarelli, chief investment officer for Independent Advisor Alliance. “In the meantime, jobless claims continue to run at a less-than-expected pace, signaling ongoing strength in the labor market. The Fed has raised rates so far, so fast that it is likely to cause a recession – and that’s priced into the bond market. What’s not priced into the stock market is a deeper, more damaging recession, and so far the data doesn’t indicate one is imminent yet.”

Dow Jones component Microsoft (MSFT) said Wednesday it plans to eliminate 10,000 jobs in response to the global economic slowdown, the company’s largest layoffs in more than eight years. MSFT stock slid another 1.3% Thursday.

Housing starts and permits for December fell to 1.382 million and 1.330 million vs. expectations for 1.362 million and 1.380 million, respectively.

Given that building permits unexpectedly backtracked last month, “The future isn’t as bright given that the level of permits is below starts,” said Jennifer Lee, senior economist at BMO Capital Markets.

Nonetheless, Wednesday’s surge in the homebuilders index to 35, the first uptick after 12 months of declines, showed that sentiment was increasing among homebuilders.

Financial Stocks Lead Decline

Global stock markets were mostly lower, with the Shanghai Composite bucking the trend, up 0.5%, while Hong Kong’s Hang Seng Index dropped 0.1%. The Nikkei 225 lost 1.4%.

In London, the FTSE dropped 1.1%. The German DAX lost 1.5% and the French CAC dropped 1.7%.

Alcoa shares slid 2.5% after Q4 earnings fell short of expectations.

Allstate lost nearly 6% after reporting a preliminary adjusted net loss for Q4 that missed consensus.

Credit card issuer Discover Financial Services (DFS) and regional bank KeyCorp (KEY) added to a string of losses in the financial sector, issuing weak reports.

Discover stock sold off more than 4%, while KeyCorp lost nearly 3%.

The S&P Financial Select Sector ETF (XLF) was the worst-performing of all 11 S&P sectors, down 1.4%.

Stock Market Movers And Shakers

The Innovator IBD 50 ETF (FFTY) shed 1.2% in Thursday’s stock market, led by solar plays SolarEdge (SEDG) and SunRun (RUN).

Construction supplier Fastenal (FAST) gained 1% after beating top and bottom-line estimates.

PG stock declined more than 1% after earnings matched estimates. Sales beat targets but the fiscal Q2 report pointed to worsening volume trends.

Roblox (RBLX) fell more than 6% after being downgraded to underweight at Morgan Stanley. The analyst cited slower bookings growth in the second half of the year.

Axon Enterprise (AXON), formerly known as Taser, jumped 1.4% and has set its sights on a new breakout. With a 17% sustainable earnings growth rate, the security and safety firm passes muster for a new screen of Warren Buffett stocks.

Axon joins 34 other stocks, including Google parent Alphabet (GOOGL), on the screen. Axon also makes IBD Leaderboard and the IBD 50 list of the best growth stocks.

Meanwhile, meme stocks dropped Thursday after making a comeback this year. The Roundhill MEME ETF (MEME) is still up nearly 15% this year.

Follow Michael Molinski on Twitter @IMmolinski

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