Stocks fell Thursday after inflation and jobs data came in better than expected, increasing concerns that the end of the Federal Reserve’s tightening campaign is nowhere near.
The S&P 500 dropped 57.19 points, or 1.4%, to 4090.41. The Dow Jones Industrial Average slipped 431.20 points, or 1.3%, to 33696.85 while the tech-focused Nasdaq Composite lost 214.76 points, or 1.8%, to 11855.83.
Supplier prices rose 0.7% in January from the prior month, the Labor Department said Thursday, the biggest gain since last summer. Economists polled by The Wall Street Journal had expected a 0.4% increase. Meanwhile, jobless–claims data showed little sign of the labor market cooling.
“It is increasingly difficult to see a significant U.S. recession on the horizon,” said
Christopher Smart,
chief global strategist at Barings and head of the Barings Investment Institute. “Much of the labor market continues to be white hot.”
After a blockbuster start to the year, stocks have limped along in recent weeks. Investors had grown optimistic that the fight against inflation was making strong progress, sending speculative assets charging higher. But a raft of data showed the economy was still surging on several fronts, including a booming jobs market, strong consumer spending and stubborn consumer-price increases.
“We saw a lot of buying from retail investors during the January rally; there was a general feeling that the worst was behind us,” said Anthony Denier, chief executive of retail brokerage Webull. “That has obviously changed.”
Recent economic prints served as a reminder that tamping down pricing pressures won’t be straightforward. Wagers on where the benchmark interest rate would peak were revised higher, and hopes have faded that central bankers might cut rates soon.
“It’s certainly possible that inflation will be stuck above 4% as the year ends,” said Barings’s Mr. Smart. “The Fed may not need to raise rates much more than currently expected, but it may not be able to cut until well into next year.”
Investors have pulled money from U.S. equity mutual funds and exchange-traded funds in recent weeks, a sign of apprehension. A recent survey of
institutional clients found that roughly one-third plan to increase their exposure to stocks, close to record lows and off recently higher levels.
Investors have pulled money from U.S. equity mutual funds and exchange-traded funds recently.
Photo:
Spencer Platt/Getty Images
Government-bond yields climbed Thursday immediately following the data deluge, though retraced some of that move as trading progressed. The yield on the benchmark 10-year U.S. Treasury note rose to 3.842% from 3.806% Wednesday. The two-year yield finished at 4.617% from 4.625%.
Treasury yields are trading around the highest levels this year, but some investors say they expect future moves to be less drastic.
Josh Emanuel,
chief investment officer for Wilshire, said that despite recent recalibrations, there is less uncertainty surrounding the path of Fed policy and inflation. That has encouragingly led volatility to fall across markets, he said.
“Investors don’t need to brace for knee-jerk corrections in the stock market as much as last year,” added Mr. Emanuel.
While the health of the economy remains squarely in focus, investors continue to parse companies’ fourth-quarter earnings. Shares of streaming company
surged $7.08, or 11%, to $70.57 after saying it saw signs of improvement in the advertising market.
stock rose $2.54, or 5.2%, to $50.99, its highest close since last May. The networking-equipment company improved its future guidance and beat Wall Street estimates.
The reception of
Shopify’s
outlook wasn’t as positive. Shares of the e-commerce company fell $8.48, or 16%, to $44.91 after posting earnings.
Elsewhere in markets, bitcoin saw a return of buyers Thursday after a new Securities and Exchange Commission proposal for the cryptocurrency sector wasn’t as harsh as some investors had expected. The digital currency touched its highest level in six months on Thursday, nearing $25,000.
Overseas, the pan-continental Stoxx Europe 600 edged up 0.2%. Asian indexes finished in mixed territory. Hong Kong’s Hang Seng Index rose 0.8%, while in mainland China, the Shanghai Composite fell 1%. Japan’s Nikkei 225 gained 0.7%.
Write to Caitlin McCabe at caitlin.mccabe@wsj.com and Eric Wallerstein at eric.wallerstein@wsj.com
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