Wall Street experienced its biggest decline this year on Wednesday after a broad decline in stocks wiped out much of the gains of the S&P 500 benchmark from last week.
The S&P 500 fell 62 points, or 1.6%, and ended the day at 3,929. The Dow Jones Industrial Average lost 614 points, or 1.8%, to close at 33,297 points, while the Nasdaq Composite fell 1.2%, ending a seven-day winning streak. . The losses are a reversal of the market, which started the year with a two-week rally.
The selling came as new economic data showed that even as inflation continues to decline,… The economy is slowing, which added to concerns about the possibility of a recession. Meanwhile, one of the key federal policymakers said interest rates should rise higher than the central bank previously indicated.
lower consumer spending
The government reported that Americans cut their spending at retailers more than expected last month, the second straight decline. Separately, the Federal Reserve said that US industrial production, which includes manufacturing, mining and utilities, fell much more in December than economists expected.
The government also reported more encouraging inflation data. Wholesale prices rose 6.2% in December from a year earlier, marking the sixth consecutive slowdown of the price gauge before it is passed on to consumers.
“The looks are that something seems to be moving inflation and retail sales in the right direction, which means it’s softer,” said Tom Martin, senior portfolio manager at Global Investments. “The question is, what does this really mean?”
Wall Street had hoped that easing inflation and slowing economic growth would affect the Fed’s stance on interest rates. The central bank has been aggressively raising interest rates throughout 2022 in an attempt to quell blistering inflation, but that has hurt stock and bond prices, and risks going too far and causing a recession.
While there is growing evidence that high inflation is finally easing, more rate increases are still needed, according to Loretta Mester, president of the Cleveland Federal Reserve Bank.
“I still see the biggest danger coming from too little tightening,” Meester said in an interview Tuesday with the Associated Press.
Mester stressed her belief that the Fed’s key interest rate should rise “slightly” above the 5% to 5.25% range that policymakers have collectively projected for the end of this year.
The central bank raised its key rate overnight to a range of 4.25% to 4.50% from almost zero last year. The Federal Reserve will announce its next interest rate decision on February 1st. Investors largely expect an increase of 0.25 percentage points next month, down from the half-point increase in December and from four previous increases of 0.75 percentage points.
“Today’s retail sales and industrial production disappointments increase the likelihood of a recession,” said Sam Stovall, chief investment analyst at CFRA.
The broader economic picture is still not clear enough to know whether the Fed’s fight against inflation is working well enough to avert a recession. Many major banks expect at least a mild recession sometime in 2023.
Biggest drawback: tech stocks
Technology stocks were among the market’s biggest drags, including a 1.9% drop in Microsoft after the tech giant joined others in its industry in announcing layoffs. The software giant is cutting 10,000 workers, or roughly 5%, of its workforce.
Finally, the S&P 500 fell by 62.11 points, to 3,928.86. The Dow Jones index fell by 613.89 points, to 33,296.96 points. The Nasdaq Heavy Index dropped 138.10 points, closing at 10,957.86.
Small cap stocks also fell. The Russell 2000 Index fell 29.92 points, or 1.6%, to 1,854.36.
Treasury yields fell broadly as traders reviewed recent economic data. The 10-year Treasury yield, which affects interest rates on mortgages and other loans, fell to 3.37% from 3.55% late Tuesday.
The yield on two-year Treasury notes, which measures expectations about the Fed’s future action, fell to 4.09% from about 4.16% before the release of the latest economic data. It was up 4.21% late Tuesday.
Investors also reviewed the company’s latest batch of earnings for more information on how inflation and consumer spending will affect earnings and revenue. PNC Financial Services Group fell 6% after announcing weak earnings.
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