UKX FTSE 100 Index

By Chris Matthews

Fed Chair Powell's speech powered markets higher Wednesday, but macro risks loom

U.S. stocks remained lower at midday Thursday, one day after Federal Reserve Chairman Jerome Powell's dovishly interpreted speech sparked a broad-based rally, the likes of which hadn't been seen since March, and as turn their focus to a weekend meeting between U.S. President Dondald Trump and Chinese leader Xi Jinping.

How are the benchmarks trading?

The Dow Jones Industrial Average fell 83 points, or 0.3% to 25,286, while the S&P 500 retreated 8.2 points, or 0.3% to 2,736. The Nasdaq Composite Index fell 26.28 points, or 0.4% to 7.265.

On Wednesday, the The Dow rallied 617.70 points, or 2.5%, to 25,366.43, while the S&P advanced 61.65 points, or 2.3%, to 2,743.82. The Nasdaq Composite Index rose 208.89 points, or 3%, to 7,291.59.

The percentage gains on the Dow and S&P Wednesday were the largest since March 26 while the Nasdaq logged its best day since Oct. 25. The move left the S&P 500 with its second-best three-day run since the 2016 presidential election, according to FactSet.

What's driving the market?

The U.S.-China trade spat will be foremost in investors minds, as investors await developments from the G-20 summit, set to begin Friday in Buenos Aires, and which will include a face-to-face meeting between Trump and Xi.

Investors hope the two leaders will be able to make progress toward a deal, or at least hit on a framework for further negotiations, that would hit the pause button on new or expanded tariffs on Chinese imports that the president has consistently threatened over the course of 2018.

Speaking to reporters, Trump on Thursday said he was "close to doing something with China" (http://www.marketwatch.com/story/trump-today-president-defends-china-tariffs-ahead-of-g-20-meeting-with-xi-2018-11-29) but that he wasn't sure he wanted to, citing revenue from tariffs on Chinese imports.

Trump on Thursday morning tweeted that "billions of dollars" are pouring into the U.S. Treasury from tariffs and that there is "a long way to go."

(https://twitter.com/realDonaldTrump/status/1068120444279103488)

Investors are also digesting new data from the Commerce Department, which showed that consumer spending and income rose more quickly than expected, at the same time that year-over-year inflation remained steady at the Fed's 2% target, numbers that support the bull case that faster economic growth can be sustained without rising inflation.

What are the strategists saying?

Ryan Nauman, market strategist with Informa Financial Intelligence, attributed Thursday's pullback to two factors: investors re-evaluating just how dovish Fed Chair Powell's Wednesday speech was, and anxiety over the Trump-Xi meeting.

"Powell said we're 'just below' the neutral rate, but the neutral rate is a range between 2.5% and 3.5%. The Fed could raise rates three times next year and still be within that band," Nauman told MarketWatch.

Read:Why economists insist Powell wasn't as dovish as the market thinks (http://www.marketwatch.com/story/why-economists-insist-powell-wasnt-as-dovish-as-market-thinks-2018-11-28)

According to Naumann, today's weakness is also related to U.S-China trade tensions, which he described as "the big elephant in the room."

"If we get some indication of a pause on new tariffs, that will be great for markets," he said. "If we get nothing much out of this weekend, you'll see rising volatility. There's a big concern about global growth slowing, and new tariffs will only hurt global growth."

The latest income and inflation data show that "although the economy is firing on all cylinders, there are still few signs of a break out in inflation," Paul Ashworth, chief U.S. rconomist at Capital Economics, wrote in a research note.

"As is typical with this market, the Fed chair gave an inch and the market took a yard," wrote Mike O'Rourke, chief market strategist at JonesTrading, in a research note, arguing that while rising interest rates are a headwind for the market, they are not the only headwind.

Read:Did Fed's Powell 'light the fuse' for a year-end stock-market rally? (http://www.marketwatch.com/story/did-feds-powell-light-the-fuse-for-a-year-end-stock-market-rally-2018-11-28)

Also see:Has Fed's Powell just led investors into a dangerous 'bear trap'? (http://www.marketwatch.com/story/has-feds-powell-just-led-stock-investors-into-a-dangerous-bear-trap-2018-11-29)

"An FOMC pause will not drive more iPhone sales, or reduce Facebook's expense growth, help Netflix subscriptions, drive Amazon's sales or end the trade war," O'Rourke wrote.

What data are in focus?

The number of Americans who applied for unemployment benefits last week rose to 234,000 their highest level in six months (http://www.marketwatch.com/story/jobless-claims-surge-to-6-month-high-of-234000-2018-11-29), according to a Thursday-morning release by the Labor Department, far above the 220,000 forecast of economists polled by MarketWatch. Still, these figures remain at historically low levels.

The Commerce Department reported that consumer spending in October rose by 0.6% (http://www.marketwatch.com/story/consumer-incomes-and-spending-surge-in-october-but-inflation-remains-under-control-2018-11-29), while income rose by 0.5%, above economists estimates, per a MarketWatch poll. The same release showed personal-consumption expenditures, the Fed's preferred measure of inflation, right at the central bank's target of 2%, year-over-year.

The National Association of Retailers reported that U.S. pending home sales slid 2.6% in October (http://www.marketwatch.com/story/pending-home-sales-tumble-to-4-year-low-in-latest-sign-the-housing-market-correction-has-arrived-2018-11-29)from September, to it's lowest level since June of 2014.

At 2 p.m., the Federal Reserve will release minutes from its November meeting, while Cleveland Fed president and FOMC voting member Loretta Mester will give remarks at the same time.

Which stocks are in focus?

Nielsen Holdings Plc. (NLSN) shares rose 3.5% Thursday, after a Financial Times report that private-equity firm Madison Dearborn has shown interest in a possible buyout.

McDonald's Corp. (MCD) shares were up 0.8%, after Morgan Stanley upgraded the stock to overweight.

Shares of Dollar Tree Inc. (DLTR) were up 5.3% Thursday, after the firm beat third-quarter profit estimates, but fell short of expectations on sales and its full-year 2018 guidance.

Express Inc. (EXPR) stock tumbled 8.7%, after the apparel retailer beat expectations (http://www.marketwatch.com/story/express-beats-earnings-and-sales-expectations-but-q4-outlook-is-well-below-estimates-2018-11-29) for third-quarter sales and profit, but provided a downbeat outlook for the current quarter.

Shares of Abercrombie & Fitch Co. (ANF) surged more than 16%, after a Thursday-morning earnings release that showed the company (http://www.marketwatch.com/story/abercrombie-fitch-shares-jump-17-premarket-after-earnings-top-estimates-2018-11-29) beating earnings and sales estimates by wide margins.

Quest Diagnostics Inc. (DGX) stock is falling more than 9% Thursday, after the lab-test company reported earnings Wednesday evening that showed the company cut its revenue forecast for 2018.

Shares of Twitter, Inc. (TWTR) are down 6.3% Thursday, after a report in Politico (https://www.politico.com/story/2018/11/28/why-is-fox-news-not-tweeting-1025861) outlined Fox News' silent boycott of the platform, having not posted on it since Nov. 8th.

How are other markets trading?

Asian markets ended Thursday mostly higher (http://www.marketwatch.com/story/asian-markets-roll-along-on-powells-comments-nikkei-up-for-5th-straight-day-2018-11-28), following the lead of U.S. markets on Wednesday. Japan's Nikkei rose 0.4%, it's fifth-straight day of gains, while markets in South Korea and Australia also logged gains.

Chinese markets were the exception to the rule, with Hong Kong's Hang Seng Index losing 0.9%, and the Shanghai Composite Index losing 1.3% as investors worry that this weekend's Trump-Xi summit will provide no tariff relief for a slowing Chinese economy.

In Europe, stocks closed broadly higher (http://www.marketwatch.com/story/european-stocks-rise-as-uk-banks-pass-brexit-stress-test-deutsche-bank-raid-adds-pressure-2018-11-29), with the Stoxx Europe 600 advancing 0.2%, and the FTSE 100 up 0.5% Thursday.

Crude oil was staging a bit of a comeback, up 2.8% Thursday to $51.77 a barrel, after briefly dipping below $50 for the first time in over a year (http://www.marketwatch.com/story/us-oil-benchmark-slides-below-50-a-barrel-for-first-time-in-13-months-2018-11-29). Gold edged higher, while the U.S. dollar was up modestly versus major rivals (http://www.marketwatch.com/story/dollar-stabilizes-after-post-powell-selloff-2018-11-29).

(END) Dow Jones Newswires

November 29, 2018 12:30 ET (17:30 GMT)

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