Dow falls 350 points after data suggests economic growth is slowing

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U.S. stock indexes traded lower on Wednesday, after data showed retail sales fell in December though wholesale inflation also fell allowing bond yields to fall and investors remain focused on quarterly earnings reports.

How are stock indexes trading
  • The S&P 500
    SPX,
    -1.07%

    was off 32 points, or 0.8% to around 3,958;

  • The Dow Jones Industrial Average
    DJIA,
    -1.27%

    fell 357 points, or 1% to 33,553;

  • The Nasdaq Composite
    COMP,
    -1.37%

    lost 80 points, or 0.7% to 11,013

On Tuesday, the Dow Jones Industrial Average fell 392 points, or 1.14%, to 33911, the S&P 500 declined 8 points, or 0.2%, to 3991, and the Nasdaq Composite gained 16 points, or 0.14%, to 11095.

What’s driving markets

U.S. data on Wednesday showed that wholesale prices slid 0.5% in December, the biggest decline since April 2020, when coronavirus pandemic began. It adds to the evidence that inflation, though still high, has started to ease.

Meanwhile, December retail sales dropped 1.1%, contracting for the second month in a row. Economists polled by the Wall Street Journal forecasted a decline of 1%.

“You’re seeing the continued effect of the rise in the federal funds rate,” said Dryden Pence, chief investment officer at Pence Capital Management. “September’s rise (in federal funds rate) is now beginning to show up and then you’ll begin to see a November’s rise show up over the next couple of months,” Pence told MarketWatch in a phone interview.

Still, investors are eyeing the U.S. central bank’s move for the next three policy meetings. “We’re obviously entering the end of the tightening cycle, but we don’t know exactly when that is,” Pence said.

Some Fed officials have reiterated their determination to bring inflation down through more interest rate hikes. St. Louis Fed President James Bullard said Wednesday that the Federal Reserve should not “stall” on raising its benchmark rates until they are above 5%.

The Fed’s Beige Book of updates on regional economic conditions is expected to be published at 2 p.m. and Philadelphia Fed President Patrick Harker will be speaking at 3:15 p.m. followed by Dallas Fed President Lorie Logan making comments at 5 p.m.. All times Eastern.

“The Fed has hit the equivalent of a monetary policy trifecta with the combination of slowing wage growth and moderating consumer and producer price inflation in recent periods,” said Peter Essele, Head of Portfolio Management, Commonwealth Financial Network. “The continued moderation in prices means additional rate hikes in the second half of 2023 are off the table at this point, which suggests the bond party will commence.”

Investors are also focusing on the next batch of U.S. fourth-quarter corporate earnings reports.

U.S. companies reporting on Wednesday include Charles Schwab
SCHW,
-2.90%
,
Prologis
PLD,
+1.47%
,
PNC
PNC,
-5.18%
,
Kinder Morgan
KMI,
-2.26%
,
Discover
DFS,
-1.58%

and Alcoa
AA,
+0.07%
.

The S&P 500 index is up 3.95% so far this year on hopes easing inflation will allow the Federal Reserve to be less aggressive in its monetary tightening cycle, making an economic hard landing less likely and thus supporting company earnings.

So far, with 33 of the S&P 500 having reported, 67% of those have beaten profit forecasts, according to Refinitiv. However, high profile disappointments, from the likes of Goldman Sachs on Tuesday, are making it difficult for the S&P 500 to move decisively above the 4,000 level.

In other U.S. economic data, U.S. industrial production fell 0.7% in December in the biggest monthly decline since September 2021.

The National Association of Home Builders’ (NAHB) monthly confidence index rose 4 points to 35 in January, the trade group said on Wednesday.

Companies in focus
  • United Airlines
    UAL,
    -2.89%

    declined 2.6% though it reported quarterly earnings that beat Wall Street’s estimates for the fourth quarter,  saying it managed well the severe winter-weather disruptions in late December, and offered an optimistic view of the current quarter and guidance for full-year 2023.

  • Microsoft Corp.
    MSFT,
    -1.36%

    shares went down 1.4% Wednesday after reports said Tuesday that the company is preparing chop thousands of jobs in engineering and human resources.

  • Moderna Inc.
    MRNA,
    +3.83%

    gained 3% after the drugmaker said an experimental vaccine significantly reduced the risk of a viral respiratory disease among older adults in a large clinical trial.

  • J.B. Hunt Transport Services Inc.
    JBHT,
    +4.77%

     shares rose 4% Wednesday after the company said it would pay out more than $8.8 million in “appreciation bonuses” to full-time drivers and full-time hourly maintenance and office workers.

  • Coinbase Global
    COIN,
    -4.45%

    shares lost 4% Wednesday after that the company announced it will cease operations in Japan, citing unstable “market conditions” in a blog post.