18 Jan. (Reuters) – Wall Street’s major indices fell on Wednesday after weak economic data and aggressive comments from Federal Reserve officials meant the central bank will not pause rate hikes anytime soon.
Before the market opened, economic data in the US showed that retail sales and producer prices fell more than expected in December. Production in US factories also fell more than expected in December and production in the previous month was weaker than previously thought.
With Wall Street’s leading averages so far showing gains for 2023, Sam Stovall, chief investment strategist at CFRA Research, said some investors saw the weekly data as an opportunity to take profits, while others were concerned about the prospects of a recession. .
“The market was overbought. Today’s economic data served as a trigger to initiate profit taking and the groups with the most gains were those that performed best last year,” said Stovall.
At 2:14 PM ET, the Dow Jones Industrial Average (.DJI) was down 434.27 points, or 1.28%, to 33,476.58, the S&P 500 (.SPX) was down 42.57 points, or 1.07% , to 3,948.4 and the Nasdaq Composite (.IXIC ) fell 87.02 points, or 0.78%, to 11,008.10.
The day’s weakest sectors are defensive consumer staples (.SPLRCD), which fell more than 2%, and utilities (.SPLRCU), which most recently fell 1.8%.
The benchmark S&P and blue-chip Dow were both on track for their second straight day of losses, while the Nasdaq, if it finished lower, would break a seven-day winning streak.
US equities had started 2023 on a strong basis, with the S&P closing nearly 4% year-to-date on Tuesday, hoping a moderation in inflationary pressures could provide the Fed with cover to reduce the size of its rate hikes.
About mid-January, the S&P was up 2.7% year-to-date for the month, while the Nasdaq was up more than 5% and the Dow, the best-performing of the three for 2022, was up 0.9%.
Previously, James Bullard, president of the St. Louis Fed, and Loretta Mester, president of the Cleveland Fed, stressed the need to raise interest rates by more than 5% to reduce inflation.
The Fed’s comments also highlighted the discrepancy between the US Federal Reserve’s estimate of its final interest rate and market expectations, which peaked at 4.88% in June. Traders are now betting on a 25 basis point rate hike in February.
“This market is very hopeful that we will get a soft landing and every time you have aggressive comments from the Fed it feels like you are not going to get that,” Dennis Dick, trader at Triple D Trading.
Investors are also focused on the fourth-quarter earnings season as a window into how corporate America is faring against the backdrop of higher interest rates.
Analysts now expect S&P 500 companies’ year-over-year earnings to fall 2.6% this quarter, according to data from Refinitiv, compared to a 1.6% decline at the start of the year.
IBM Corp. (IBM.N) fell 2.6% after Morgan Stanley downgraded the company’s stock from “overweight” to “equal weight.”
Early winners Microsoft Corp (MSFT.O) and Tesla Inc (TSLA.O) erased gains by trading late afternoon with Microsoft up 1.2% and Tesla up 2.7%.
Moderna Inc (MRNA.O) rose 3.6% after reporting data showing the effectiveness of its respiratory syncytial virus (RSV) vaccine.
PNC Financial Services Group Inc (PNC.N) fell 5.4% after the company missed estimates for fourth-quarter earnings.
Falling issues outnumbered emerging on the NYSE by a ratio of 1.38 to 1; on Nasdaq, a ratio of 1.66 to 1 favored the fallers.
The S&P 500 recorded 9 new highs in 52 weeks and 2 new lows; the Nasdaq Composite recorded 71 new highs and 14 new lows.
Reporting by Sinéad Carew in New York, Shreyashi Sanyal and Amruta Khandekar in Bengaluru; Additional reporting by Shubham Batra; Edited by Shounak Dasgupta and David Gregorio
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