Dow falls 450 points after weak economic data, hawkish Fed remarks ease inflation cheer

U.S. stock indexes traded sharply lower on Wednesday afternoon, after data on falling retail sales in the vacation shopping season raised concerns that consumer spending and economic growth are losing momentum because the Federal Reserve raises rates of interest.

How are stock indexes trading
  • The S&P 500
    SPX,
    -1.19%

    was off 44 points, or 1.1% to around 3,946

  • The Dow Jones Industrial Average
    DJIA,
    -1.37%

    fell 453 points, or 1.3% to 33,458

  • The Nasdaq Composite
    COMP,
    -3.70%

    lost 86 points, or 0.8% to 11,008

On Tuesday, the Dow Jones Industrial Average fell 392 points, or 1.14%, to 33911, the S&P 500 declined 8 points, or 0.2%, to 3991, and the Nasdaq Composite gained 16 points, or 0.14%, to 11095.

What’s driving markets

U.S. data on Wednesday showed that wholesale prices slid 0.5% in December, the most important decline since April 2020, when coronavirus pandemic began, adding to evidence that inflation, though still high, has began to ease.

Meanwhile, December retail sales dropped 1.1%, contracting for the second month in a row. Economists polled by the Wall Street Journal forecasted a decline of 1%.

In other U.S. economic data, U.S. industrial production fell 0.7% in December in the most important monthly decline since September 2021.

“You’re seeing the continued effect of the rise within the federal funds rate,” said Dryden Pence, chief investment officer at Pence Capital Management. “September’s rise (in federal funds rate) is now starting to indicate up and then you definately’ll begin to see a November’s rise show up over the following couple of months,” Pence told MarketWatch in a phone interview.

MarketWatch Live: Stocks turn lower, giving up early gains seen after economic data

U.S. stocks opened modestly higher on Wednesday, later losing momentum to trade deep within the red because the positive begin to the brand new yr began to indicate signs of fading. The S&P 500 index is up 3.95% to date this yr on hopes easing inflation will allow the Federal Reserve to be less aggressive in its monetary tightening cycle, making an economic hard landing less likely and thus supporting company earnings.

“The sentiment remains to be negative, and I feel today is nearly some profit-taking of a fairly strong few weeks to begin the yr, since you’ve got a pleasant little run,” said Jimmy Lee, founder and CEO of Wealth Consulting Group. “But I feel the trend now could be shifting from being so negative to getting closer to more neutral.”

Fed officials on Wednesday reiterated their determination to bring inflation down through more rate of interest hikes. St. Louis Fed President James Bullard said that the Federal Reserve mustn’t “stall” on raising its benchmark rates until they’re above 5%. Meanwhile, Loretta Mester, president of the Fed’s Bank of Cleveland, acknowledged that the economy is starting to see “the type of actions that we want to see,” but further rate hikes are still needed. Mester is among the many more consistently hawkish members of the central bank’s 19-person interest-rate-setting committee.

“I feel inflation is definitely higher than what the numbers show. I feel they [interest rates] are going to come back down faster than what the bulk is predicting. And I feel the Feds going to pause here possibly at the top of the primary quarter, and I feel there’s a probability that they may even lower rates by the top of the yr,” Lee told MarketWatch via phone.

See: Businesses across the country expect ‘little growth within the months ahead,’ Fed’s Beige Book says

The Federal Reserve’s latest Beige Book indicated that U.S. economic activity either slight increased or slight declined over the past six weeks. Just one regional bank – the Recent York Fed – reported a big decline in activity. For the months ahead though, districts generally expect to see little growth within the wake of persistent inflation and high rates of interest.

Philadelphia Fed President Patrick Harker will probably be speaking at 3:15 p.m. followed by Dallas Fed President Lorie Logan making comments at 5 p.m.. All times Eastern.

Investors are also specializing in the following batch of U.S. fourth-quarter corporate earnings reports. To date, with 33 of the S&P 500 having reported, 67% of those have beaten profit forecasts, in response to Refinitiv. Nonetheless, high profile disappointments, from the likes of Goldman Sachs on Tuesday, are making it difficult for the S&P 500 to maneuver decisively above the 4,000 level.

Corporations in focus
  • United Airlines
    UAL,
    -4.91%

    declined 4.1% though it reported quarterly earnings that beat Wall Street’s estimates for the fourth quarter, saying it managed well the severe winter-weather disruptions in late December, and offered an optimistic view of the present quarter and guidance for full-year 2023.

  • Microsoft Corp.
    MSFT,
    -1.37%

    shares went down 1.3% Wednesday after reports said Tuesday that the corporate is preparing chop 1000’s of jobs in engineering and human resources.

  • Moderna Inc.
    MRNA,
    +3.63%

    gained 3.8% after the drugmaker said an experimental vaccine significantly reduced the chance of a viral respiratory disease amongst older adults in a big clinical trial.

  • J.B. Hunt Transport Services Inc.
    JBHT,
    +4.54%

     shares rose 4.7% after the corporate said it will pay out greater than $8.8 million in “appreciation bonuses” to full-time drivers and full-time hourly maintenance and office staff.

  • Coinbase Global
    COIN,
    -5.01%

    shares lost 4% Wednesday after that the corporate announced it is going to stop operations in Japan, citing unstable “market conditions” in a blog post.

—Jamie Chisholm contributed to this text.

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