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It looked like all systems go for the market Thursday after the U.S. Labor Department reported more initial jobless claims than expected. The data was construed as a signal that the labor market is cooling down, conducive to the Fed's goal of lowering inflation. All indices opened the day higher, with the tech sector and the Invesco QQQ Trust Series (NYSE:QQQ) leading the way, at one point trading up more than 1% and eyeing a record close.
But, before the day was over, various Fed speakers appeared tentative about the notion of cutting interest rates too early, sending stocks into a freefall.
The Price Action: The stocks that got hammered the hardest on Thursday came primarily from interest-rate-sensitive sectors like semiconductors and clean energy stocks. These companies are more prone to sell-offs on hawkish Fed policy, as they typically are borrowing money to help pay for growth. When interest rates stay higher for longer, it makes borrowing money more expensive, hurting profits.
NVIDIA Corp (NASDAQ:NVDA), Advanced Micro Devices (NASDAQ:AMD), Super Micro Computer (NASDAQ:SMCI) and other chip names dropped significantly on the hawkish Fed Speak. The Invesco Solar ETF (NYSE:TAN), which tracks companies in the solar and clean energy space, fell more than 3% intraday on the interest rate fears.
Other sectors that got hit include regional banks, with the SPDR S&P Regional Banking ETF (NYSE:KRE) dropping more than 2%, and the biotech industry, with the SPDR S&P Biotech ETF (NYSE:XBI) dropping more than 2% intraday.
On Thursday, Federal Reserve Bank of Richmond President Thomas Barkin said that the Fed should “take its time” cutting interest rates, and that data so far in 2024 has been less encouraging in regards to slowing inflation.
Then, less than an hour later, Chicago Fed President Austan Goolsbee said that housing inflation will need to come down to bring inflation to the Fed's 2% target. Other Fed officials that spoke Thursday raised doubts to if the central bank will be able to cut rates at all this year, let alone three times, like Chairman Jerome Powell laid out just a couple of weeks ago.
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Image created using artificial intelligence via Midjourney.
