Wall St stumbles after weak data, hawkish Fed comments

  • Fed’s Bullard and Mester raise return rates
  • U.S. retail sales tumble in December
  • Indices down: Dow 1.28%, S&P 1.07%, Nasdaq 0.78%

Jan 18 (Reuters) – Major Wall Street indexes fell on Wednesday after weak economic data and hawkish comments from Federal Reserve officials raised concerns that the central bank will not suspend interest rate hikes if early.

Before the market opened, US economic data showed retail sales and producer prices fell more than expected in December. Additionally, US factory output fell more than expected in December and the previous month’s output was weaker than expected.

As major Wall Street averages show gains so far for 2023, Sam Stovall, chief investment strategist at CFRA Research, said some investors viewed the week’s data as an opportunity to take profits while others worried about the prospects of a recession.

“The market was overbought. Today’s economic data served as a trigger to kick off a period of profit taking and the groups with the most profit taking are the ones that have done the best over the past year,” he said. Stovall said.

As of 2:14 p.m. ET, the Dow Jones Industrial Average (.DJI) fell 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 were defensive consumer staples (.SPLRCD), down more than 2%, and utilities (.SPLRCU), which last lost 1.8%.

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

U.S. stocks had started 2023 on solid footing, with the S&P closing up nearly 4% year-to-date on Tuesday, on hopes that moderating inflationary pressures could give the Fed a hedge for reduce the magnitude of its interest rate hikes. .

Around mid-January, the S&P was up 2.7% for the month so far, while the Nasdaq was up more than 5% and the Dow Jones, the best of three for 2022, was up. increased by 0.9%.

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

The Fed’s comment also highlighted the disparity between the US central bank’s estimate of its terminal rate and market expectations, which called for a peak rate of 4.88% in June. Traders are now betting on a 25 basis point rate hike in February.

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

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

Analysts now expect year-over-year earnings for S&P 500 companies to decline 2.6% for the quarter, according to Refinitiv data, from a 1.6% decline at the start. of the year.

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

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

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

PNC Financial Services Group Inc (PNC.N) fell 5.4% after the company missed fourth-quarter profit estimates.

Falling issues outnumbered rising ones on the NYSE by a ratio of 1.38 to 1; on the Nasdaq, a ratio of 1.66 to 1 favored the decliners.

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

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

Our standards: The Thomson Reuters Trust Principles.

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