Stocks Fall Again on Recession Worries


U.S. stocks declined again Thursday as economic data and corporate-earnings reports clouded investors’ view of the health of the economy.

The S&P 500 slipped 0.9%, putting the index on course for a third consecutive day of declines. The Dow Jones Industrial Average fell 0.8%—dropping into negative territory for the year—while the technology-heavy Nasdaq Composite shed 1.1%.

Markets began 2023 with strong gains, buoyed by optimism that the Fed may soon begin slowing the pace of its interest-rate rises. The end of China’s severe pandemic restrictions also boosted some investors. But in recent days that upbeat mood has started to fade, with investors concerned that the lagged effects of the Fed’s rate rises are beginning to take their toll. 

Losses this week have come alongside weaker-than-expected economic figures, which sent indexes lower Wednesday, including a 1.6% drop for the broad S&P. Data on retail sales and producer prices both pointed to growing sluggishness in the U.S. economy, a sign that the Federal Reserve’s fight against inflation is working, but not without an economic cost. 

Weekly data released Thursday showed jobless claims falling to the lowest level since September, suggesting the labor market remains tight. But a batch of lukewarm corporate-earnings releases and the Fed’s latest look at the business climate have added to traders’ concerns.

“The housing market is clearly in a recession; the manufacturing sector is teetering on the edge of a recession. We are going into 2023 with a more cautious consumer, and as the year progresses we will see some signs that the job market is faltering,” said

David Donabedian,

chief investment officer at CIBC Private Wealth US. 

Government-bond prices edged lower on Thursday but held onto most of their year-to-date gains, which have followed investors’ expectations that a weakening economy means the Fed is nearing the end of its interest-rate increases. The yield on the 10-year Treasury rose to 3.397%, up from 3.374% on Wednesday but down from its 3.826% level to end last year. Yields fall as bond prices rise.

Despite widespread anxiety about a recession, not all investors are convinced 2023 will bring deep stock-market losses.

Nancy Tengler,

chief investment officer at Laffer Tengler Investments, has been advising clients to consider shifting more money into equities, arguing that a steady decline in inflation will help forestall severe declines in the major indexes.

“We’d argue this is a time you want to begin to get overweight for the next cycle,” Ms. Tengler said.

On Thursday, tepid earnings reports drove some of the biggest declines in individual stocks. Aluminum producer Alcoa fell 3.9% after it reported a slump in revenue due to lower aluminum prices. Credit-card issuer

Discover Financial

lost 2.3% after the company reported after Wednesday’s close that more of its customers are falling behind on payments on loans and credit cards.

Procter & Gamble

stock rose slightly. The consumer-goods giant reported lower quarterly profit and declining sales volumes as the rising costs of Tide detergent and other staples prompted consumers to cut back on purchases at the end of 2022.

Traders on the floor of the New York Stock Exchange on Wednesday. The S&P 500 closed lower Wednesday, marking a second consecutive day of declines.



Photo:

angela weiss/Agence France-Presse/Getty Images

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and Fifth Third climbed after they reported year-over-year profit growth in the latest quarter. Truist gained 2.2% and Fifth Third rose 1.4%.

Brent crude oil climbed 1.3% to $86.06 a barrel, reversing earlier losses. Data released Wednesday showed a sharp rise in U.S. crude-oil stockpiles, which added to concerns that demand for crude—which is highly sensitive to economic growth—was waning. 

Global stock markets were mixed. In Europe, indexes were lower across the board, with the pan-continental Stoxx Europe 600 falling 1.3%. In Asia, Hong Kong’s Hang Seng weakened by 0.1% and Japan’s Nikkei 225 fell 1.4%. The Shanghai Composite Index in mainland China rose 0.5%.

Write to Will Horner at william.horner@wsj.com and Matt Grossman at matt.grossman@wsj.com

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