How stocks are trading

• The S&P 500
  SPX,
  -1.94%
  fell 84 points, or 2.3%, to 3,634.

• The Dow Jones Industrial Average
  DJIA,
  -1.39%
  shed 512 points, or 1.7%, to 29,171.

• The Nasdaq Composite
  COMP,
  -2.77%
  retreated 343 points, or 3.1%, to 10,708.

On Wednesday, the Dow Jones Industrial Average rose 549 points for its largest percentage-point increase since July, while the S&P 500 and Nasdaq saw their biggest gains in more than a month.

What’s driving markets

Equity markets had rallied Wednesday after the Bank of England’s intervention to calm U.K. bonds reduced broader fixed income market stresses and revived hopes that central banks might intervene to support markets if severe dislocations occur.

But the effects of the BoE’s announcement appeared short-lived as U.S. stocks turned lower again on Thursday amid a broader selloff in global equity markets. Treasurys also tumbled alongside European sovereign bonds, sending yields higher across the globe after U.S. sovereign bonds recorded their biggest one-day rally since the onset of the COVID-19 pandemic.

As a result, each of the S&P 500’s 11 sectors was down by at least 1%, with consumer discretionary and information-technology stocks seeing the biggest losses.

Apple Inc.
AAPL,
-4.36%
was blamed for helping to exacerbate the weakness in stocks, while also contributing heavily to the Nasdaq’s decline of more than 3%, as reports about iPhone production cuts continued to weigh on the megacap consumer-tech giant. Shares were down more than 4% in recent trade.

See: U.S. stocks surge without help from Apple for the first time in more than 2 years

In a note to clients, a team of fixed-income strategists at Barclays explained why the market impact of the Bank of England’s intervention was so short-lived.

While the bond-market intervention might stave off a crisis, it hasn’t changed anything in regards to the macro backdrop, and investors are instead being forced to price in expectations that a combination of monetary and fiscal stimulus could further stoke inflationary pressures.

“…[A]fter the first rounds of short-covering and squaring up of positions is over, we worry that markets will go back to fixating on one issue: large fiscal stimulus is now being accompanied by open-ended monetary stimulus for the next few weeks,” the team of Barclays macro strategists wrote.

As a result, borrowing costs are expected to continue rising as most of the world’s big central banks rush to combat inflation, which in turn diminishes demand for risk assets.

The benchmark 10-year Treasury yield
TMUBMUSD10Y,
3.754%
climbed more than 9 basis points to 3.797% and the equivalent duration U.K. gilt rose 9.6 basis points to 4.117%. The Stoxx 600 index of European stocks
SXXP,
-1.81%
fell 1.4%.

The U.S. dollar also weighed on stocks as it resumed its advance against the euro
EURUSD,
+0.48%
and pound
GBPUSD,
+1.35%.
As a result, the ICE U.S. Dollar Index
DXY,
-0.24%
rose 0.2% to 112.79, just shy of its 20-year high around 114.50 hit midweek.

“The [dollar] still exhibits a strong, negative correlation to global equities because, in a world where monetary and fiscal policy are now at odds with each other, the value of collateral is being tested…the whole reason central banks are hiking rates is to tighten financial conditions, which implicitly means that the Fed is targeting a lower equity market,” said a team of Citi analysts led by Jamie Fahy.

Investor anxiety manifested in the CBOE Volatility Index, or the VIX,
VIX,
+8.45%,
a measure of expected S&P 500 volatility known as Wall Street’s fear gauge. The VIX, whose long-term average is around 20, was hovering near 31, having stood above 30 for much of this week.

In a note to clients on Thursday, Nicholas Colas, co-founder of DataTrek Research, said the VIX would likely need to hold above 30 until “at least Friday” to signal a “tradeable low.”

See: Wall Street’s ‘fear gauge’ might hold the key to the timing of the next market rebound. Here’s why.

On the economic data front, the latest update to second-quarter GDP figures confirmed that the U.S. economy shrank at an annualized clip of 0.6% during the second quarter.

However, a weekly report on U.S. jobless benefit claims revealed that the number of Americans initially applying for unemployment benefits fell by 16,000 to 193,000 in the week ended September 24, the lowest level since April.

The jobless claims data helped to weigh on stocks by emboldening the Fed to stick with its plans to continue raising interest rates.

“Current labor market conditions will likely keep the Fed on track to aggressively tighten monetary policy at the next meeting in November,” said Jeffrey Roach, Chief Economist for LPL Financial.

See: U.S. jobless claims drop to lowest level since April

Cleveland Fed President Loretta Mester said during an interview on CNBC that the interest rates in the U.S. haven’t reached restrictive territory yet and that the Fed has yet to reach a point where it should consider pausing rate hikes.

St. Louis Fed President James Bullard defended the Fed from claims its policy of aggressive interest-rate hikes is creating impossible conditions for foreign central banks.

See: Fed rate hikes were no surprise to foreign central banks, Bullard says

San Francisco Fed President Mary Daly will make some comments at 4:45 p.m.

Stocks in focus

• Starbucks Corp.
  SBUX,
  -0.25%
  shares tumbled after the company announced Wednesday that it was boosting its quarterly dividend to 53 cents a share.

• Carmax Inc.
  KMX,
  -23.91%
  shares fell more than 20%, making it the worst performer on the S&P 500, following weak earnings and a warning about waning consumer demand for discretionary purchases.

• General Motors Co.
  GM,
  -5.80%
  and Tesla Inc.
  TSLA,
  -5.32%
  also slumped in tandem with Carmax as the company’s warning about consumer spending weighed on carmakers and their suppliers.

• Amazon.com Inc.
  AMZN,
  -2.92%
  shares tumbled nearly 3% after the company announced plans to hike employee pay.

• Bed Bath & Beyond Inc.
  BBBY,
  -5.13%
  seesawed into negative territory in morning trading Thursday, after the home-goods retailer reported a much wider-than-expected fiscal second-quarter loss, but showed that “accelerated markdowns” had helped improve the inventory overhang.