US stocks open mixed as existing home sales seen falling 2.4%

U.S. equities opened mixed Thursday after continuing jobless claims rose for another week, adding to evidence that the labor market is cooling and potentially clearing a path for the Federal Reserve to begin easing policy later this year. The S&P 500 hovered near the flatline in the first hour of trading, while the tech-heavy Nasdaq Composite edged lower and the Dow Jones Industrial Average posted modest gains of about 0.2 percent.

"Inflation is still far too high," New York Fed President John Williams said in a speech Thursday, pushing back against expectations of imminent rate cuts even as the labor market shows signs of softening. Williams, a voting member of the Federal Open Market Committee, said the central bank needs to see more progress on inflation before it can consider lowering borrowing costs. His comments reinforced the cautious tone from the Fed's June meeting minutes, which showed policymakers in no rush to ease.

The mixed open followed the weekly jobless claims report, which showed continuing claims rising to their highest level in months. The persistent increase suggests that unemployed Americans are finding it harder to secure new positions, a dynamic that typically emerges when the labor market is loosening. Later Thursday, investors will digest June existing home sales data, with economists forecasting a 2.4 percent decline to a 4.09 million annualized pace, according to FXStreet data. The prior month's reading was revised lower to 4.19 million from an initial 4.17 million.

The combination of a softening labor market and still-elevated inflation creates a dilemma for the Fed. If jobless claims continue to rise, pressure will mount for rate cuts to support the economy. But with inflation running above the central bank's 2 percent target, policymakers may be reluctant to ease too quickly. Markets are now pricing in a greater probability of a rate cut at the Fed's September meeting, though Williams' hawkish comments Thursday could temper those expectations. The 2-year Treasury yield, which is sensitive to rate expectations, edged lower in early trading.

The labor market has been a key focus for investors in recent weeks, with each data point scrutinized for clues about the economy's trajectory. Continuing jobless claims, which track the number of people receiving unemployment benefits, have been trending higher, suggesting that unemployed workers are taking longer to find new jobs. This dynamic typically emerges when the labor market is loosening, giving the Fed more room to cut rates without reigniting inflation. The trend in claims data will be closely watched ahead of the July nonfarm payrolls report, which is due in early August.

Existing home sales data on deck

Later Thursday, the National Association of Realtors is set to release June existing home sales data. The consensus estimate calls for sales to fall to a 4.09 million annualized rate, down from a revised 4.19 million in May. A decline would mark the second consecutive monthly drop, reflecting the impact of elevated mortgage rates on housing affordability. The housing market has been one of the sectors most sensitive to the Fed's rate hiking cycle, and further weakness could add to the case for rate cuts. Mortgage rates have remained elevated despite the Fed holding its benchmark rate steady, with the average 30-year fixed rate hovering above 6.5 percent, according to Freddie Mac data.

Fed's Williams pushes back on rate cut expectations

New York Fed President John Williams, speaking at an event Thursday, said inflation remains "far too high," showing that the central bank is not yet ready to declare victory in its battle against rising prices. Williams' comments come as markets have been increasing bets on rate cuts, with some traders pricing in the first reduction as early as September. The tension between the Fed's hawkish rhetoric and market expectations for easing has been a source of volatility in recent weeks. The Fed next meets on July 29-30, though most economists expect the first rate cut to come at the September 16-17 meeting at the earliest. The fed funds rate currently stands at 5.25 percent to 5.5 percent, where it has remained since July 2023.

This article is for informational purposes only and does not constitute investment advice.