Stocks were lower on Thursday as investors looked for direction as the artificial intelligence boom shows signs of losing steam and policymakers at the Federal Reserve appear to be divided on future interest rate decisions.
The Dow Jones Industrial Average (NYSE: DIA) sank over 170 points to close at 45,947.32, while the broader market S&P 500 Index (NYSE: SPY) and tech-heavy Nasdaq Composite (NASDAQ: QQQ) each fell 0.5% to end the session at 6,604.72 and 22,384.69, respectively.
Shares of both Oracle (NASDAQ: ORCL) and Nvidia (NASDAQ: NVDA) slid lower throughout the session, falling for a third day as concerns lingered over record-high equity valuations. Still, the artificial intelligence market was kept afloat from further losses on Thursday as with data analytics software startup Databricks announced its own $100 million investment into OpenAI, following similar contracts reached with Oracle and Nvidia earlier this week.
Market participants are also closely monitoring a growing division amongst Fed policymakers after the central bank lowered its benchmark overnight borrowing rate for the first time since December earlier this month. Chicago Fed president Austan Goolsbee and Kansas City Fed president Jeff Schmid both expressed concern about more aggressive interest rate cuts on Thursday due to persistent inflationary pressures on the broader economy in separate speeches, while newly appointed Fed board member Stephen Miran continued his public push for deeper cuts.
Policymakers signaled in their post-meeting statement in September that two more rate cuts are coming in this year, with Miran preferring outsized reductions to support further U.S. economic growth while other policymakers regarded the latest decision as more of a risk management move.
Speaking in Grand Rapids, Michigan on Thursday, Goolsbee said he is "somewhat uneasy with front loading too many rate cuts based just on the payroll jobs numbers slowing down," adding that "if we are in this environment where inflation's been above the 2% target for almost 5 years in a row now ... just counting on the inflation to be transitory makes me uneasy."
Schmid echoed this sentiment in his own remarks in Dallas, Texas, stating that current policy appears to be in the right place to ease price pressures.
"I viewed the 25-basis point cut in the policy rate last week as a reasonable risk-management strategy," Schmid said Thursday. "That said, my view is that inflation remains too high while the labor market, though cooling, still remains largely in balance."
On the economic front, initial unemployment claims showed an unexpected decline for the week ended Sept. 30, falling to 218,000 from the previous week's total of 232,000. Continuing jobless claims, which are tracked a week behind, also dipped slightly to 1.92 million, offering a positive sign that the labor market is stabilizing from its recent string of weaker-than-expected reports.
U.S. real gross domestic product (GDP) in the second-quarter was revised higher in the Bureau of Economic Analysis' third estimate on Thursday, growing at an annualized pace of 3.8% for the April through June period. The new estimate shows a rebound from the first-quarter's decline of 0.6%, as strong consumer spending and business investments continued to support the broader economy.
"It is clear that the current level of Fed interest rates is not slowing the economy down and is not hurting the labor market either," said Christopher Rupkey, chief economist at FWDBONDS, quoted by Reuters. "If job growth is slowing down, it is not the economy that is the problem, it is the Trump 2.0 policies on immigration. The economy is steady as a rock."
Sales of previously owned homes ticked lower in August, the National Association of Realtors (NAR) reported Thursday, coming in at a seasonally adjusted 4 million units -- a 0.2% over July and an increase of 1.8% from August 2024.
The Midwest was the best-performing region throughout the month, reflecting the need for a more affordable market as the median home price in this region were 22% below the national median price. Regarding affordability, sales of homes above $1 million rose 8% annually, while homes priced below $100,000 fell more than 10% year-over-year.
"Record-high housing wealth and a record-high stock market will help current homeowners trade up and benefit the upper end of the market," said Lawrence Yun, chief economist at the NAR, in a statement. "However, sales of affordable homes are constrained by the lack of inventory."
In the news, Starbucks (NASDAQ: SBUX) announced a $1 billion restructuring plan on Thursday that includes the closure of unprofitable locations in North America and the layoff of about 900 non-retail employees. In a letter to employees, CEO Brian Niccol said the coffee-chain will offer "severance and support packages including benefits extensions" to those impacted, with the company expecting to incur about $150 million in separation costs and about $850 million in restructuring charges.
"These steps are to reinforce what we see is working and prioritize our resources against them," Niccol wrote. "I believe these steps are necessary to build a better, stronger, and more resilient Starbucks that deepens its impact on the world and creates more opportunities for our partners, suppliers, and the communities we serve."
For Friday, investors will turn their attention towards the latest personal consumption expenditures (PCE) index reading for August due out in the morning. Key earnings reports include Costco Wholesale (NASDAQ: COST).