U.S. stocks slumped for a third straight session Thursday as investors weighed mixed signals on the strength of the economy, digested another round of corporate earnings reports and remained focused on the outlook for the pace and scope of future Federal Reserve interest rate increases.
How stocks are trading
-
The Dow Jones Industrial Average
DJIA,
-0.84%
fell 236 points, or 0.7%, to 33,061. -
The S&P 500
SPX,
-0.99%
fell 35 points, or 0.9%, to 3,894. -
The Nasdaq Composite
COMP,
-1.28%
shed 122 points, or 1.1%, to trade at 10,835.
On Wednesday, the Dow fell more than 600 points, or 1.8%, while the S&P 500 shed 1.6% and the Nasdaq Composite declined 1.2%. The S&P 500’s decline was its biggest since Dec. 15, chopping its gain for the year to just 2.3%.
What’s driving markets
Stocks have suffered this week, with investors keying in on further signs of a weakening U.S. economy. Data on Wednesday showed retail sales fell more than expected, industrial production slumped, and Microsoft
MSFT,
confirmed it would shed 10,000 jobs.
“What just some weeks ago would have seen markets cheering the weaker data as it would have suggested correctly that the Fed’s aggressive rate hike campaign is doing its job in tamping down the demand side of the economy, is now being judged more harshly with bad news no longer enjoying a warm welcome by traders and investors alike,” said Quincy Krosby, chief global strategist for LPL Financial, in a note.
On Thursday, good news for the economy also appeared to be bad news for stocks after first-time claims for unemployment benefits unexpectedly fell by 15,000 to 190,000, the lowest reading since September. Construction on new U.S. homes fell a seasonally adjusted 1.4% in December to 1.38 million, the Commerce Department said Thursday.
The Federal Reserve needs to raise interest rates further to get inflation on a steady downward path, said Susan Collins, the president of the Boston Fed, on Thursday.
“I anticipate the need for further rate increases, likely to be just above 5%, and then holding rates at that level for some time,” Collins said, in a speech to a conference on the future of the New England economy sponsored by her regional bank. Rates could rise “perhaps at a slower pace,” Collins said.
Other Fed officials set to speak Thursday include Vice Chair Lael Brainard and New York Fed President John Williams.
St. Louis Fed President James Bullard and Cleveland Fed President Loretta Mester both reiterated on Wednesday that they thought interest rates needed to go higher still to ensure inflation falls back to the central bank’s 2% target, though Dallas Fed President Lorie Logan said the Fed should slow down the pace of its interest-rate hikes until more data shows where the economy is headed.
Treasury Secretary Janet Yellen confirmed to top U.S. lawmakers in a letter that her department began to use “extraordinary measures” on Thursday due to the federal government hitting its ceiling for borrowing. She had indicated last week that such a move was coming.
See: U.S. runs up against its debt limit, so Treasury starts using ‘extraordinary measures’: Here’s what that means
Of particular concern to equity bulls is that the S&P 500 index failed to break decisively above the 4,000 level and has been rebuffed again by its 200-day moving average, meaning the bear market downtrend remains intact.
A mixed fourth quarter earnings reporting season to date has also constrained bullish impulses.
Over the past few weeks, earnings expectations for the first quarter and the second quarter of 2023 switched from year-over-year growth to year-over-year declines, said John Butters, senior earnings analyst at FactSet, in a Wednesday update.
Expectations for both quarters have been falling over the past few months, he said.
On June 30, the estimated earnings growth rate for Q1 2023 was 9.6%, and the estimated earnings growth rate for Q2 2023 was 10.3%, he said. By Sept. 30, the estimated earnings growth rate for Q1 2023 was 6.3%, and the estimated earnings growth rate for Q2 2023 was 5.1%. As of Wednesday, the estimated earnings decline for Q1 2023 is -0.6%, and the estimated earnings decline for Q2 2023 is -0.7%, FactSet data show.
Companies in focus
-
Procter & Gamble Co.
PG,
-0.52%
shares were up 0.2%, shaking off early weakness seen after the consumer goods giant reported fiscal second-quarter profit that matched expectations, but volume that fell more than some analysts had forecast. -
Alcoa Corp.
AA,
-4.88%
shares were down 4% after the aluminum maker reported a second consecutive quarterly loss, saying it has tried to lessen the impact throughout the year of high costs for raw materials and energy and lower prices for its alumina and aluminum. -
Shares of Discover Financial Services
DFS,
-2.32%
fell 2.4% after the credit card’s forecast for net charge-offs on credit card transactions came in worse than Wall Street’s targets.
