U.S. stocks were little changed Thursday, a day after they fell in the wake of the Federal Reserve chief’s warning over high equity valuations.
The slight declines follow losses on Wednesday, which were spurred by comments from Federal Reserve Chairwoman Janet Yellen, who suggested the multiyear rally in stocks may have driven prices too high and raised concerns that debt investors are taking excessive risks. The Dow fell 0.5% to 17841.98 and the S&P 500 slipped 0.4% to 2080.15.
“The remark yesterday was completely unexpected and it did send the markets down for a spin,” said Anna Rathbun, director of research for CBIZ Retirement Plan Services, which manages about $ 9.5 billion. Still, she said she’s not recommending investors sell out of their stock portfolios just yet. “I don’t think the U.S. equity market is cheap, but it’s not a cause for alarm for me.”
Ms. Yellen’s observations sparked market moves in Europe and Asia on Thursday. The Shanghai Composite declined 2.8% and Japan’s Nikkei Stock Average fell 1.2%. Germany’s DAX added 0.5% and France’s CAC 40 lost 0.4%. The yield on the 10-year German government bond surged to its highest level in more than five months, after falling to a record low last month amid the European Central Bank’s bond-buying program.
The losses in U.S. stocks on Tuesday and Wednesday have dragged the Dow down 1.3%. The blue-chip index is now 2.4% below its record close from March 2, through Wednesday’s close. The S&P 500 has fallen 1.6% in the same two-day period, and is now 1.8% below its all-time high from April 24.
The U.S. stock market has been choppy this year, with the Dow up just 0.1% in 2015, through Wednesday’s close. The S&P has gained 1% for the year, and hasn’t pulled back by 5% or more since last fall, when it fell 7.4% from Sept. 18 to Oct. 15.
Steve Weeple, who oversees about $ 5 billion as senior investment director of equities at Standard Life Investments, said he didn’t expect a significant pullback in stocks just yet, noting that the S&P hit a record in late April.
First-quarter earnings weren’t as bad as feared, said Mr. Weeple. And the two headwinds to earnings—the strong dollar and weak oil prices—have been reversing in recent weeks.
Crude-oil prices slipped 1.2% to $ 60.24 a barrel on Thursday but have gained about 40% from their 2015 low of $ 43.46. The euro slipped 0.6% to $ 1.1280, but has gained about 5% against the dollar this quarter.
“The disappointment in terms of companies reporting has come from the translation of overseas earnings, because of a strong dollar and a pretty dramatic slowdown in anything related to the oil patch,” said Mr. Weeple. “Outside of those two factors, first-quarter earnings were OK,” he said.
In earnings news, Alibaba Group Holding Ltd. BABA 7.64 % said its revenue rose 45% in the March quarter, beating expectations. Shares jumped 9.6%.
Whole Foods Market Inc. WFM -11.55 % on Wednesday said its profit rose 11% in the latest quarter but reported sales growth of 10% that didn’t meet analysts’ expectations. The grocer said it plans to start a sister chain of smaller stores aimed at younger shoppers. Shares slumped 11%.
Economic news on Thursday included an upbeat report on the labor market. Jobless claims rose by 3,000 to 265,000 in the week ended May 2, the Labor Department said Thursday. Economists surveyed by The Wall Street Journal had expected 275,000 claims.
Investors are looking ahead to Friday’s employment report to see if the weak first quarter extended past winter. Economists surveyed by The Wall Street Journal expect the Labor Department to report that 228,000 jobs were added in April. The unemployment rate is expected to tick down to 5.4% from 5.5%. The employment report for March, released last month, came in much weaker than expected, with 126,000 jobs added.
In other markets, gold futures slipped 0.4% to $ 1185.40 an ounce. The yield on the 10-year Treasury note inched down to 2.206% from 2.236% on Wednesday. Yields fall as prices rise.