Before The Bell - Investors are still sorting out prospects for stocks and bonds, the economy, and interest rates following signs of a shift in Federal Reserve interest rate policy at mid-week.

After a clear negative initial reaction resulting from a more hawkish Fed tone on monetary policy, the major stock indexes turned mixed. 

On Thursday, the Dow Jones Industrial Average dropped 210 points and the S&P 500 lost a couple of points; but the NASDAQ climbed 122 points.

The NASDAQ was helped by a retreat in interest rates, as the yield on the 10-year Treasury note fell to 1.51% from 1.57%. Following the Fed meeting, the yield on the 10-year jumped from 1.50% to 1.57% but, after some reflection, there seems to be more of a feeling that rates are range-bound.  The tech stocks on the NASDAQ are hurt more by higher rates since their valuations are based to a greater extent on future profits.

The market had been in a holding pattern in the days leading up to the central bank conference, as Wall Street waited to see the Fed’s response to inflationary trends and the strong economic recovery.

The Federal Reserve’s revised view that it may need to raise interest rates earlier than expected was met with an almost automatic thumbs down by investors. Truthfully, though, the Fed cannot be expected to maintain its extremely accommodative policies indefinitely as business conditions improve.

Meantime, some unevenness in the economic data continued with Thursday’s news release that weekly initial jobless claims rose to 412,000 from 360,000 the week before.

The job market is one of the areas the Fed is most focused on, and employment levels are coming back strongly, if not quite full throttle. It does not appear to be a lack of positions available. A record 9.3 million jobs are waiting to be filled, according to the Labor Department.

Overall, Thursday’s market action marked a shift away from the so-called reflation trade that has done well lately. Sectors, such as energy, materials, financials, and industrials lagged as tech outperformed. It is probably too soon to declare a trend reversal, though.

Even though the NASDAQ Composite was in the plus column, the index had more declining issues than gainers, although the split was not nearly as poor as on the New York Stock Exchange.

Ahead of the opening bell on Friday, stock futures point to a lower start, as investors exercise caution ahead of what could be a bit of a transition period. - Robert Mitkowski

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.