Wall St stumbles after weak data, hawkish Fed comments

Wall St stumbles after weak data, hawkish Fed comments

  • Fed’s Bullard, Mester Back Rate Rises
  • US retail sales fall in December
  • Indices down: Dow 1.28%, S&P 1.07%, Nasdaq 0.78%

Jan 18 (Portal) – Wall Street’s main indices fell on Wednesday after weak economic data and hawkish comments from Federal Reserve officials raised fears that the central bank might not halt interest rate hikes anytime soon.

Ahead of the market, US economic data showed that retail sales and producer prices fell more-than-expected in December. US factory production also fell more-than-expected in December, and the previous month’s production was weaker than previously estimated.

With Wall Street’s major 2023 averages showing gains so far, Sam Stovall, chief investment strategist at CFRA Research, said some investors viewed the weekly data as a profit-taking opportunity, while others worried about the prospects of a recession.

“The market was overbought. Today’s economic data acted as a trigger to initiate a profit-taking phase, and the groups that took the most profits were the best-performing groups last year,” Stovall said.

As of 2:14 p.m. ET, the Dow Jones Industrial Average (.DJI) was down 434.27 points, or 1.28%, to 33,476.58, the S&P 500 (.SPX) was down 42.57 points, or 1.07%, to 3,948 .4 and the Nasdaq Composite (.IXIC ) fell 87.02 points, or 0.78%, to 11,008.10.

The weakest sectors on the day are defensive consumer staples (.SPLRCD), down more than 2%, and utilities (.SPLRCU), which was last down 1.8%.

The benchmark S&P and blue-chip Dow were both on course for their second straight day of losses, while the Nasdaq, if it finishes lower, would experience a seven-day winning streak.

US stocks had started 2023 on strong footing, with the S&P up nearly 4% year-to-date on Tuesday on hopes that an easing in inflationary pressures could provide cover for the Fed to reduce the magnitude of its rate hikes.

Around mid-January, the S&P is up 2.7% month to date, while the Nasdaq is up more than 5% and the Dow, the best of the three for 2022, is up 0.9%.

Earlier, St. Louis Fed President James Bullard and Cleveland Fed President Loretta Mester stressed the need to raise interest rates above 5% to get inflation under control.

The Fed comment also highlighted the discrepancy between the Federal Reserve’s estimate for its final interest rate and market expectations, which peaked at 4.88% through June. Traders are now betting on a 25 basis point rate hike in February.

“This market is very hopeful that we’re going to have a soft landing, and every time you hear hawkish comments from the Fed, they have a feeling you’re not going to get it,” said Dennis Dick, trader at Triple D Trading .

Investors are also focusing on the fourth quarter earnings season as a window on how US companies are faring amid higher interest rates.

Analysts now expect year-over-year earnings for S&P 500 companies for the quarter to fall 2.6%, according to Refinitiv data, compared to a 1.6% decline earlier in the year.

IBM Corp (IBM.N) fell 2.6% after Morgan Stanley downgraded the company’s shares from overweight to equal weight.

Early gainers Microsoft Corp (MSFT.O) and Tesla Inc (TSLA.O) erased gains by closing late afternoon with Microsoft down 1.2% and Tesla down 2.7% beech.

Moderna Inc (MRNA.O) rose 3.6% after reporting data showing the effectiveness of its respiratory syncytial virus (RSV) vaccine.

PNC Financial Services Group Inc (PNC.N) slipped 5.4% after the company missed estimates for fourth-quarter earnings.

Declining issuance dominated on the NYSE at a 1.38 to 1 ratio; on the Nasdaq, a 1.66 to 1 ratio favored decliners.

The S&P 500 posted 9 new 52-week highs and 2 new lows; the Nasdaq Composite posted 71 new highs and 14 new lows.

Reporting by Sinéad Carew in New York, Shreyashi Sanyal and Amruta Khandekar in Bengaluru; Additional reporting from Shubham Batra; Edited by Shounak Dasgupta and David Gregorio

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