US stocks fall before Fed Chairman's appearance, oil prices recover

U.S. stocks fell on Thursday as investors awaited Federal Reserve Chairman Jerome Powell’s speech at the annual central bank conference in Jackson Hole. Crude oil prices rebounded after four straight sessions of declines, buoyed by expectations that the Fed will start cutting interest rates in September.

At the close, the S&P 500 fell 0.89% to 5,570.64 points. The Dow Jones Industrial Average lost 177.71 points, or 0.43%, to 40,712.78 points. The Nasdaq Composite dropped 1.67% to 17,619.35 points.

Before this decline, the market had experienced an impressive recovery period after the historic sell-off on August 5. At one point in the session, all three indexes were in the green and the S&P 500 was just a hair away from its all-time record set in July. However, the market quickly reversed and ended the session in the red.

Investors felt selling pressure from rising U.S. Treasury yields, with the 10-year yield rising nearly 9 basis points to 3.863 percent.

Technology stocks were the hardest hit, falling 2% and the biggest decline among the 11 major sectors of the S&P 500.

Powell will deliver a highly anticipated speech on Friday from the Jackson Hole, Wyoming retreat at the Fed’s annual central bank conference, which brings together Fed officials and central bankers from other major economies. Markets are looking for a clearer picture of the direction of monetary policy for the rest of 2024.

The market is betting on a 100% chance of the Fed cutting rates at its September meeting, according to data from the CME Group's FedWatch Tool. However, traders are more likely to bet on a 25 basis point cut in its first cut, with a 76% chance. The odds of a 50 basis point cut are 24%.

Minutes of the Fed's July meeting released Wednesday showed a majority of participants thought a rate cut from the current range of 5.25% to 5.5% would be appropriate at the September meeting if economic data continued to develop as expected.

Data from the U.S. Labor Department on Thursday showed the number of people filing for unemployment benefits rose in the most recent week, another sign that the labor market in the world’s largest economy is cooling. Initial claims for unemployment benefits rose by 4,000 to 232,000 in the week ended Aug. 17, compared with the 230,000 expected by economists in a Reuters poll.

Another report from research firm S&P Global showed that the US Composite Manufacturing PMI, a gauge of manufacturing activity, fell slightly to 54.1, its lowest in four months. This is a sign of weakening activity in both the manufacturing and services sectors. However, the index's reading was still among the highest in more than two years and was only 0.2 percentage points lower than July's reading of 54.3.

Experts say these figures reflect a slowing US economy and continued fall in inflation, paving the way for the Fed to cut interest rates.

Standard Chartered Bank strategist Steve Englander said the Fed's meeting minutes showed the Fed was close to achieving its inflation target while the unemployment rate was rising, leading to the possibility that the Fed could cut interest rates by 0.5 percentage points.

“If the Fed hasn’t declared victory in the war against inflation, it will soon,” Englander told Reuters.

After this decline, Nasdaq decreased insignificantly compared to the beginning of the week, while Dow Jones and S&P 500 still increased by 0.1% and 0.3% respectively.

In the energy market, Brent crude oil futures in London increased by 1.17 USD/barrel, equivalent to an increase of 1.54%, closing at 77.22 USD/barrel. WTI crude oil futures in New York increased by 1.08 USD/barrel, equivalent to an increase of 1.5%, closing at 73.01 USD/barrel.

This is the first increase in oil prices after 4 consecutive declines. The possibility of the Fed cutting interest rates in September has become the driving force for oil prices to recover, although the rising USD has put downward pressure on oil prices. Up 0.4%, the Dollar Index, which measures the strength of the greenback against 6 other major currencies, escaped a 13-month low.

Gaza ceasefire talks have stalled, while Iran-aligned Houthi rebels continue to attack cargo ships in the Red Sea, in a show of support for Palestinians in the war between Hamas and Israel in Gaza.

The prospect of weaker global oil demand due to economic slowdown, especially in China, has weighed on oil prices recently. The possibility of a Gaza ceasefire has also reduced the risk premium for oil prices.

Investors are waiting to see if OPEC+, an alliance between the Organization of the Petroleum Exporting Countries (OPEC) and some non-OPEC members including Russia, will reconsider plans to gradually withdraw a production cut program starting in October. OPEC+ has said the planned increase could be postponed or reversed if necessary.