By Jon Sindreu
U.S. stocks stabilized Thursday, suggesting investors are coming to terms with central banks' gradual plans to leave behind a decade of unprecedented monetary stimulus.
The Dow Jones Industrial Average waffled between small gains and losses and was recently off 29 points, or 0.1%, to 25172. The S&P 500 rose 0.3%, and the technology-heavy Nasdaq Composite gained 0.8%. All three indexes slumped in the previous session.
After the Federal Reserve signaled Wednesday that U.S. interest rates will likely go up four times in 2018 -- instead of three, as had been widely believed -- the European Central Bank said Thursday that it would end its bond-buying program in December, but reassured markets by pledging that rates in the eurozone won't start to rise at least until summer of next year.
"The Fed and the ECB and other central banks have taken the market to places they've never been before and now they want to gently nudge it back to somewhere closer to where it was in the past," said Brent Schutte, chief investment strategist at Northwestern Mutual Wealth Management Co.
Mike Loewengart, vice president of investment strategy at E*Trade, said the Fed's decision was warranted given strong U.S. economic data, which continued to buoy stocks Thursday.
Retail sales for May rose 0.8% from a month earlier to $502 billion, the biggest one-month jump since November. The number of workers filing new claims for unemployment benefits fell below expectations, a signal of a further tightening labor market. The number of claims workers made for longer than a week decreased to its lowest level since 1973.
Eight of 15 Fed officials now expect two more interest-rate increases this year, up from seven officials in March and four in December. There is a 57% chance that this will happen, according to CME Group 's analysis of derivatives markets.
Money managers were widely expecting the ECB to announce the end of debt purchases in December, but some were worried that tighter policy could hurt the eurozone economy, which has been showing signs of losing some momentum.
"We're in the midst of this decade-plus global economic expansion that is not going to go on forever," said Mr. Loewengart. "The broad landscape for investors looks good right now, but that said, it won't always look good."
Investors were positively surprised by ECB officials saying they expect key interest rates to remain unchanged at least through the summer of 2019, suggesting that policy will remain more expansionary than investors were expecting.
"This is, at least partly, an unexpected communication twist," Carsten Brzeski, an economist at Dutch bank ING, wrote to clients, adding he believes the ECB has managed to please market expectations on both sides.
"Today's decision is a truly Solomonic compromise between the hawks and the doves," he said.
Shares of financial stocks in the S&P 500 slumped Thursday with government-bond yields. The yield on the 10-year Treasury note traded at 2.950% after settling at 2.979% the previous day. Lower yields tend to hurt lending profitability.
And news that the Trump administration is preparing to levy tariffs on tens of billions of dollars of Chinese goods as early as Friday weighed on stocks expected to be hurt by higher costs from tariffs. The S&P's materials and industrials sectors edged lower, and shares of aerospace giant Boeing and heavy machinery manufacturer Caterpillar fell.
But many investors have become desensitized to trade-related headlines.
"I do think the market is somewhat looking through those as of now because they still believe President Trump and the administration is using them as a negotiation tool," Mr. Schutte said.
Elsewhere, the Stoxx Europe 600 climbed 1.2%, recouping earlier losses after the ECB announcement, and the euro dropped 1.4% against the dollar.
Another of the world's top central banks, the Bank of Japan, is scheduled to make a policy announcement Friday.
Write to Jon Sindreu at firstname.lastname@example.org
(END) Dow Jones Newswires
June 14, 2018 13:09 ET (17:09 GMT)
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