US close: Stocks tumble amid renewed rate rise fears

dl wall street wall st new york city nyc new york stock exchange nyse nasdaq trading finance us usa united states of america unsplash — Sharecast / Sophie Backes via Unsplash

Stocks tumbled on Wall Street on Thursday, reversing most of their gains made on Wednesday, as a raft of decent data replaced hopes of a pre-Christmas ‘Santa rally’ with renewed rate hike fears.

At the close, the Dow Jones Industrial Average was down 1.05% at 33,027.49, as the S&P 500 lost 1.45% to 3,822.39, and the Nasdaq Composite was off 2.18% at 10,476.12.

The Dow closed 348.99 points lower on Thursday, erasing most of the gains it made during a stellar session on Wednesday.

“The bears are back in charge today, as UK GDP data provided yet another warning that we may already be in a recession,” said IG senior market analyst Joshua Mahony earlier.

“Notably, we have seen US indices push lower despite an upward revision to the US third quarter growth rate.

“This likely reflects the growing feeling of concern that the Federal Reserve will continue pushing rates upwards in the absence of any major economic distress signal.”

On the macroeconomic front, final GDP growth came in higher than expected in the third quarter, with the United States economy expanding by 3.2% quarter-on-quarter.

That was above the prior estimate of 2.9% growth, and a reversal of the 0.6% contraction seen in the second quarter.

“The unexpected upward revision to third quarter GDP is encouraging but the economy will soon be tested by the recent tightening in financial market conditions and Fed rate hikes,” said Oren Klachkin, lead US economist at Oxford Economics.

“The revisions won't require a major revision to our fourth quarter and 2023 forecasts, but it does support our recent decision to push back the start of the recession to the second quarter of 2023.”

Elsewhere, continuing jobless claims came in slightly lower than expected, and broadly in line with the prior week.

According to the Labor Department, continuing claims came in at 1.673 million for the week ended 10 December, just shy of expectations for 1.683 million.

The figure for the week ended 26 November, meanwhile, was revised to 1.678 million.

Initial jobless claims also came in below forecasts, with 216,000 Americans joining the jobless queue in the week ended 17 December.

That was below the 222,000 expected, but was a slight uptick on the revised 214,000 figure for the week ended 10 December.

“Initial claims data can be noisy around the holidays, but the low level of initial claims is a reminder that employers overall still aren't laying off large numbers of workers even though the economy faces headwinds,” said Nancy Venden Houten at Oxford Economics.

“A higher level of continued claims, meanwhile, suggests that workers are collecting benefits for longer because finding a new job may be getting more difficult, if only slightly so.

“On balance, the claims data are consistent with a labour market that is still too tight for the Fed and leave the Fed on track to raise rates further in 2023, after last week's 50-basis point rate hike.”

There was some good news on the inflation front, with the Department of Commerce reporting a fall in its personal consumption expenditure (PCE) measure for the third quarter.

It said the measure - which looks at the price of goods and services purchased by consumers specifically for consumption - rose 4.3% on the quarter, down from 7.3%.

Core PCE prices were up 4.7%, which was in line with the second quarter but slightly ahead of the 4.6% market watchers had pencilled in.

The GDP price index also showed some cooling of inflationary pressure, rising 4.4% in the third quarter - more than halving from the second quarter’s 9% print.

It was, however, above the 4.3% economists were expecting for the measure, which looks at the change in the price of final goods and services.

“Most of the emerging downshift in core inflation is in goods prices, notably new and used vehicles, thanks to margin recompression on the back of normalising supply chains,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics.

“Core PCE inflation was driven up largely by margin expansion and soaring rents, and both forces are now swinging decisively in the opposite direction.”

Shepherdson said the scope for a “very steep drop” in core PCE inflation was “clear”, adding Pantheon had “deep scepticism” over the Fed’s 3.5% forecast for the fourth quarter of next year.

“We’re expecting the Fed to revise down its forecasts as soon as March, though progress initially will be slow; policymakers appear to have been scarred by the experience of the past year-and-a-half, and will want to be sure they aren’t moving their numbers down prematurely.

“Markets won’t wait.”

In equities, chipmakers were among the leading losers as Advanced Micro Devices fell 5.64%, Applied Materials lost 7.84%, and Nvidia slid 7.04% by the close.

Elsewhere, used car dealer CarMax was 3.66% weaker after it reported third-quarter sales and profits that fell significantly short of expectations.

Cinema operator AMC Entertainment was off 7.36% after the supposed ‘meme stock’ announced a $110m equity raise.

Reporting by Josh White for Sharecast.com.

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