US stocks fell on Wednesday as Wall Street continued to scan company financial updates for signs of an “earnings recession” that many analysts had warned of.
Investors also evaluated the government’s monthly retail sales report, which reflected a slowdown in consumer spending and a cooler-than-expected inflation rate.
The S&P 500 (^GSPC) fell 0.4%, while the Dow Jones Industrial Average (^DJI) lost 250 points, or 0.7%. The tech-heavy Nasdaq Composite (^IXIC) lost 0.2%.
James Bullard, President of the St. Louis Fed, said on Wednesday that he and his colleagues should raise interest rates above 5% “as soon as possible” to curb inflation before the current cycle of rate hikes is interrupted.
“Why don’t we go where we’re supposed to go?” he said at a Wall Street Journal event. “Why hold out?”
Meanwhile, Federal Reserve Chair Jerome Powell has tested positive for COVID-19 and is showing mild symptoms.
“Chair Powell is up to date on COVID-19 vaccines and boosters,” the Fed said in a statement. “He is following guidance from the Centers for Disease Control and Prevention and is working remotely while isolating at home.”
Turning to economic data, the Commerce Department said on Wednesday that US retail sales fell 1.1% last month, while November figures were also revised downwards. Economists had expected a decline of 0.8% in December.
Meanwhile, the producer price index (PPI), which measures inflation at the wholesale level, fell 0.5% last month – the biggest drop since the pandemic. The overall PPI price rose 6.2% annually, down sharply from the year-ago figure of 7.3% in November. The pressure comes a week after the consumer price index (CPI) showed inflation easing to a cooler 6.5%.
NEW YORK, NEW YORK – JANUARY 17: Traders work on the floor of the New York Stock Exchange during morning trading. (Photo by Michael M. Santiago/Getty Images)
In company news on Wednesday, Microsoft (MSFT) said it was laying off 10,000 employees to cut costs. The layoffs affect about 4.5% of the company’s 221,000 employees. Microsoft shares fell more than 1% in late morning trading.
The story goes on
United Airlines (UAL) shares lost momentum after rising earlier in the session following better-than-expected results for the last three months of 2022 and an upbeat outlook for the new year – underscoring resilient travel demand despite high fares .
International Business Machines Corporation (IBM) shares fell almost 2% after Morgan Stanley downgraded it to equal-weight from overweight.
Shares of Moderna (MRNA) surged nearly 4% after the biotech announced the results of a late-stage clinical trial for its vaccine against RSV were effective and that it had approval for the shot at Food and Drug Administration will apply .
Investors are nearing the peak of what will likely be a challenging fourth-quarter earnings season. Analysts have revised downwards their forecasts for earnings growth. According to data from FactSet Research, the S&P 500 is expected to report a 3.9% year-on-year earnings decline for the fourth quarter — the first year-over-year earnings decline since late 2020 reported by the index since late 2020, if realized.
DataTrek’s Nicholas Colas notes that while short-term declines in sequential S&P earnings are similar to those that have preceded the last four recessions, there is not enough evidence at this point to support an economic downturn or a significant decline in corporate earnings.
“What we don’t have — yet — is insight into the catalyst that will drive the next set of major negative quarterly comparisons,” Colas said.
“Yes, the Fed’s aggressive monetary policy over the past year could continue to bite the US economy in 2023 and hurt corporate earnings,” he added. “Right now, however, there aren’t enough economic data points to make a strong case for a 2023 recession and/or significantly lower corporate earnings.”
Investors also eyed a crucial central bank move abroad early Wednesday. The Bank of Japan kept monetary policy unchanged and, contrary to market expectations, kept its ultra-low interest rates and a cap on its bond yields. The yen fell against the dollar after the result.
On the commodity markets, oil continued a winning streak. West Texas Intermediate (WTI) crude oil futures rose 2% to $81.80 a barrel.
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Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter @alexandraandnyc
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