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US stocks were on track to end in the red on Wednesday as investors analyzed economic data that showed a fall in retail sales and a fall in headline producer price inflation.
By the last hour of trading, the tech-heavy Nasdaq Composite (COMP.IND) was down 0.86% to 10,999.50 points. The S&P 500 (SP500) fell 1.18% to 3,943.92 points, while the blue-chip Dow (DJI) fell 1.40% to 33,436.98 points.
All 11 S&P sectors were down, led by consumer staples and utilities.
Economic data took some of the spotlight on a busy day, pointing to continued gloom surrounding the US economy. Investors fear the Fed’s aggressive tightening may have gone too far and plunge the economy into recession. The Fed is widely expected to reach the end of its rate hike cycle and begin the downshift, especially as inflation has shown signs of moderating.
December headline producer price inflation fell more-than-expected to -0.5% versus -0.1% consensus. The core PPI came in at +0.1%, in line with estimates.
“The PPI shows that the fall in wholesale commodity inflation has spread to intermediates and is spreading to finished goods,” tweeted Kathy Jones, Schwab’s chief fixed income strategist.
At the same time, retail sales and core retail sales were both -1.1% in December. In addition, US industrial production fell more sharply than expected in December.
“Due to weak retail sales, the sharp fall in industrial production and news of more job cuts are fueling fears that the US may already be in recession. This is the third straight month that industrial activity has contracted with production declining and looking broad-based,” ING said.
Also released on Wednesday was the Fed’s Beige Book report on regional economic activity, which showed overall activity was relatively flat from the previous report. The report also showed that little growth is generally expected in the coming months.
“The big news overnight is that there is no big news overnight as the BoJ met economists’ expectation that it would not change the YCC today, despite rising market expectations that they would,” Jim wrote Reid from Deutsche Bank. “Politics appear unsustainable if current conditions continue, despite having spent $265 billion (a whopping 6% of annual GDP!) buying bonds since last meeting on Dec. 20.”
Japanese equities (NKY:IND) rallied +2.5% as yields fell. The dollar (DXY) slipped against a basket of major currencies.
Treasury yields fell after producer price inflation data, while Treasury-focused ETFs trended higher. The 10-year government bond yield (US10Y) fell 17 basis points to 3.37%. The 2-year yield (US2Y) was down 11 basis points to 4.08%.
“We would like to point out that the 10-year government bond yield is not exactly cheap here,” said ING. “It’s practically about 150 basis points above the terminal funds rate set by the Fed Funds Future, or was about 150 basis points recently. That’s quite a range.”
“History shows it’s been broader, but not by much and not for too long. History also shows that it’s rare for it to trade so strongly through interest rates.”
Among active stocks, United Airlines (UAL) had changed course after earlier recovering on a bullish earnings forecast. PNC (PNC) slipped and was among the biggest percentage losers on the S&P 500 (SP500) after posting an earnings loss.
Moderna (MRNA) was among the top S&P percentage gainers after the company released study results for its respiratory syncytial virus vaccine candidate.