Wall Street’s main indexes fell sharply on Thursday as fresh evidence of a tight labor market and hawkish comments from policymakers deepened fears of elevated interest rates for longer than expected.
In midday trading, the Dow Jones Industrial Average slipped 364 points, or 1.1%, to 32,905, the S&P 500 dropped 1.1%, and the Nasdaq was down 1.3%.
Most big technology and other growth stocks like Alphabet and Microsoft fell between 1% and 2.3% as US Treasury yields surged on prolonged rate-hike expectations.
Tesla dropped over 5% after the December sales of its China-made electric vehicles fell to a five-month low, while Amazon, which announced increased layoff plans, reversed premarket gains.
The ADP National Employment report showed a much greater-than-expected rise in private employment in December, while another report showed weekly jobless claims fell last week.
The reports came a day after data showed a moderate fall in job openings, in growing evidence that the labor market remains tight.
“The market wants to see more unemployment to get the Fed to stop hiking and the report today was actually good from an economic standpoint, but bad from getting the Fed to stop,” said Thomas Hayes, chairman at Great Hill Capital LLC in New York.
“This is going to be a knee-jerk reaction to stronger than expected economic data. But as the weeks roll on, reality will set in and more of these layoff announcements will be forthcoming.”
A strong labor market has been a concern for markets pummeled by rising borrowing costs as it gives the Federal Reserve a reason to raise rates for longer than expected this year.
In the previous session, Wall Street’s main indexes erased some of their gains after minutes from the Fed’s December meeting showed the central bank was laser-focused on fighting inflation even as officials agreed to slow the pace of rate hikes to limit risks to economic growth.
Both Kansas City Fed leader Esther George and Atlanta President Raphael Bostic on Thursday stressed the central bank’s priority to curb stubborn price pressures through policy tightening.
Traders were almost evenly split on chances of a 25-basis point and a 50-bps rate hike in February, but still see rates peaking at slightly above 5% in June.
The more comprehensive nonfarm payrolls report is due on Friday, which would provide further clues on labor demand and the rate hike trajectory.
Among individual stocks, Walgreens Boots Alliance dropped 6.7% after the drugstore chain posted a quarterly loss on an opioid litigation charge.
Bed Bath & Beyond lost 21.8% after the company said it was exploring options, including a bankruptcy filing.