Stocks fall as earnings season picks up, economic data rolls in

U.S. stocks turned lower Wednesday as Wall Street continued to parse through corporate financial updates for signs of the “earnings recession” many analysts have warned about.

Investors also assessed the federal government’s monthly retail sales report, which reflected a slowdown in consumer spending activity, together with a cooler-than-expected inflation reading.

The S&P 500 (^GSPC) slid 0.4%, while the Dow Jones Industrial Average (^DJI) shed 250 points, or 0.7%. The technology-heavy Nasdaq Composite (^IXIC) was off by 0.2%.

St. Louis Fed President James Bullard said Wednesday that he and colleagues should move rates of interest above 5% “as quickly as we are able to” to rein in inflation before pausing the present climbing cycle.

“Why not go to where we’re purported to go?” he said at a Wall Street Journal event. “Why stall?”

Meanwhile, Federal Reserve Chair Jerome Powell tested positive for COVID-19 and is experiencing mild symptoms.

“Chair Powell is up thus far with COVID-19 vaccines and boosters,” the Fed said in a press release. “Following Centers for Disease Control and Prevention guidance, he’s working remotely while isolating at home.”

On the economic data front, the Commerce Department on Wednesday said retail sales within the U.S. fell 1.1% last month, while November’s reading was also revised downward. Economists had expected a 0.8% decline in December.

Meanwhile, the Producer Price Index (PPI), which measures inflation on the wholesale level, decreased 0.5% last month — the largest drop because the pandemic. Headline PPI rose at an annual 6.2% clip, down meaningfully from the year-over-year reading of seven.3% in November. The print comes one week after the Consumer Price Index (CPI) showed inflation ease to a cooler 6.5%.

NEW YORK, NEW YORK – JANUARY 17: Traders work on the ground of the Recent York Stock Exchange during morning trading. (Photo by Michael M. Santiago/Getty Images)

In corporate news, Microsoft (MSFT) said Wednesday that it’s shedding 10,000 staff as a part of an effort to chop costs. The layoffs impact roughly 4.5% of the corporate’s 221,000 total employees. Microsoft shares were down greater than 1% in late-morning trading.

Shares of United Airlines (UAL) lost momentum after climbing earlier within the session following better-than-expected earnings for the last three months of 2022 and an upbeat outlook for the brand new yr — underscoring resilient travel demand even despite high airfares.

Shares of International Business Machines Corporation (IBM) fell nearly 2% following a downgrade from Morgan Stanley to Equal-Weight from Chubby.

Moderna (MRNA) shares rose nearly 4% after the biotech company said results from a late-stage clinical trial for its vaccine against RSV was effective and that it could seek approval for the shot from the Food and Drug Administration by the center of the yr.

Investors are approaching the thick of what is more likely to be a difficult fourth-quarter earnings season. Analysts have been downwardly revising their forecasts for earnings growth. The S&P 500 is projected to report a year-over-year decline in earnings of three.9% for the fourth quarter, in accordance with data from FactSet Research — the primary year-over-year decline in earnings reported by the index since late 2020 if realized.

DataTrek’s Nicholas Colas notes that while near-term declines in sequential S&P earnings resemble people who have preceded the last 4 recessions, there isn’t enough evidence at this point to support an economic downturn or sizable drop-off in corporate results.

“What we don’t have – yet – is visibility into the catalyst which is able to drive the following set of larger negative quarterly comparisons,” Colas said.

“Yes, last yr’s aggressive Fed monetary policy should bite the US economy in 2023 and take corporate earnings lower,” he added. “As of straight away, nonetheless, there are usually not enough economic data points to make an airtight case for a 2023 recession and/or substantially lower corporate earnings.”

Investors were also watching a vital central bank move overseas early Wednesday. The Bank of Japan kept monetary policy unchanged, maintaining its ultra-low rates of interest and a cap on its bond yield, contrary to market expectations. The yen dropped against the dollar following the consequence.

In commodities markets, oil prolonged a streak of gains. West Texas Intermediate (WTI) crude futures rose 2% to $81.80 per barrel.

Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter @alexandraandnyc

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