The good vibes on Wall Street are fading fast: US stocks tumbled again Friday afternoon while investors get to grips with an acidifying economy.
The Dow fell 330 points, or 1%. The S&P 500 fell 1.2% and the Nasdaq Composite fell 1.1%.
CNN Business’s Fear and Greed Index, a measure of market sentiment, fell to “Fear” on Friday. The market had been in “Greed” mode for weeks.
The sell-off has been wide. Only 11 companies in the S&P 500 trade in the green. Real estate and consumer discretionary were the hardest hit, falling more than 3.5% and 2% respectively.
Equities had rallied this month on weaker-than-expected inflation and some stronger-than-expected reports on the broad economy and the labor market. Investors were hopeful that the Federal Reserve could slow its historic pace of rate hikes and that inflation could recover sometime next year without sending the economy into recession.
That excitement continued until Fed Chairman Jerome Powell crashed Wall Street’s party on Wednesday with difficult news: Economists at the Fed believe U.S. gross domestic product, the broadest measure of the U.S. economy, will barely grow next year. And they predict that the US unemployment rate will rise to 4.6% by the end of 2023, meaning that about 1.6 million Americans will be out of work.
Fears about those tough Fed forecasts were compounded by a worse-than-expected retail sales report on Thursday, sending shares plummeting. The Dow lost 765 points, or 2.3%, on Thursday, the index’s worst day in three months. The S&P 500 lost 2.5% and the Nasdaq plunged 3.2%, their worst days in a month.
Now economists at Moody’s Analytics forecast that the US economy will grow at just 1.9% year on year in the fourth quarter, down from the previous estimate of 2.7%. Weak manufacturing and retail sales reports put off analysts at Moody’s, who also cut their GDP forecast for 2023 to just 0.9%, much lower than the 1.9% estimate for 2022.
“This leaves little room for anything to go wrong,” Moody’s economist Matt Colyar wrote in an analysis.
Sentiment on Wall Street can change in the blink of an eye, and this week is clear proof of that: the Dow is down about 1,300 points since the Fed’s policy update at 2pm ET on Wednesday. Stocks don’t help: it’s December. Many traders are on vacation, volume is low and small movements can exacerbate.
But as my colleague Matt Egan points out, the market can be in a lose-lose situation. Good economic news has been bad news for investors as the Fed tries to cool the economy as part of its anti-inflation campaign. But bad economic news is also bad for investors – and for everyone – because it increases the risk of a recession.
Adobe (ADBE) and Facebook parent company Meta are currently the biggest winners in the market, up 3% and 2.7% respectively. Shares of Adobe (ADBE) soared after the company reported better-than-expected quarterly earnings and guidance. Meta, which is still down nearly 65% this year, saw a tick after JPMorgan upgraded the company’s stock from overweight to neutral.
– Nicole Goodkind and Matt Egan from CNN contributed to this report