Wall Street ends lower for third straight day as recession worries mount

  • US business activity slumps in December
  • Meta jumps on rating upgrade from JP Morgan
  • Adobe climbs to optimistic profit forecast
  • Dow down 0.85%, S&P 500 down 1.11%, Nasdaq down 0.97%

NEW YORK, Dec 16 (Reuters) – US stocks fell for a third consecutive month and suffered a second straight week of losses on Friday, as fears mounted that the Federal Reserve’s campaign to curb inflation could plunge the economy into a recession recession would plunge.

Equities have faltered since the US Federal Reserve’s decision to raise interest rates by an expected 50 basis points (bps). However, comments from Fed Chair Jerome Powell signaled further monetary tightening, and the central bank forecast interest rates would break 5% in 2023, a level not seen since 2007.

Further comments from other Fed officials fueled concern. New York Fed President John Williams said on Friday it was still possible that the US Federal Reserve would raise interest rates more than expected next year. The policymaker added that he doesn’t expect a recession due to the Fed’s aggressive tightening.

Additionally, Federal Reserve Bank of San Francisco President Mary Daly said it was “reasonable” to believe that once the Fed’s interest rates have peaked, they could stay there into 2024.

“It feels like the market is finally starting to understand that bad news is bad news and that is exactly what is starting to happen. Since the October lows, the market has continued to price in what I would describe as a significant level of optimism that the Fed has been able to pilot and steer a successful soft landing,” said Dave Wagner, equity analyst and portfolio manager for Aptus Capital Advisors in Cincinnati .

“Finally, the market takes into account that bad news should mean bad things for the market.”

The Dow Jones Industrial Average (.DJI) fell 281.76 points, or 0.85%, to 32,920.46; the S&P 500 (.SPX) lost 43.39 points, or 1.11%, to 3,852.36; and the Nasdaq Composite (.IXIC) fell 105.11 points, or 0.97%, to 10,705.41.

For the week, the Dow is down 1.66%, the S&P is down 2.09% and the Nasdaq is down 2.72%.

Money market bets show at least two 25 basis point rate hikes over the next year and a final rate of around 4.8% by mid-year before falling to around 4.4% by the end of 2023.

On the economic front, a report showed that US business activity continued to fall in December as new orders fell to the lowest level in just over 2-1/2 years, although slowing demand helped ease inflation.

The tech-heavy Nasdaq closed below its 50-day moving average on Thursday, a key technical level seen as a sign of momentum. On Friday, the S&P also closed below its 50-day moving average.

The prospects for a ‘Santa Claus rally’ or year-end uptrend in markets have dimmed this year as the majority of global central banks implemented tightening policies. The Bank of England and the European Central Bank were the latest to announce an extended cycle of interest rate hikes on Thursday.

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However, markets pared losses in the last hour of trading, possibly due in part to the simultaneous expiration of stock options, stock index futures and index options contracts, known as triple witching, which can exacerbate market volatility.

Each of the S&P 500’s 11 major sector indices was down, led by a more than 2.96% decline in real estate stocks (.SPLRCR).

Meta Platforms Inc (META.O) gained 2.82% after JP Morgan upgraded the stock to overweight from neutral, while Adobe Inc (ADBE.O) gained 2.99% after the Photoshop manufacturer had forecast better-than-expected earnings for the first quarter.

Exact Sciences Corp (EXAS.O) rose 16.39% after rival Guardant Health Inc (GH.O)’s cancer test missed expectations, while General Motors Co (GM.N) fell 3.91% after its Robotaxi unit Cruise has been subjected to a safety investigation by US auto safety regulators.

Volume on US exchanges was 17.28 billion shares compared to the average of x.xx billion for the entire session over the past 20 trading days.

Declining issues predominated on the NYSE at a 2.47 to 1 ratio; on the Nasdaq, a 1.66 to 1 ratio favored decliners.

The S&P 500 posted a new 52-week high and 18 new lows; the Nasdaq Composite posted 79 new highs and 392 new lows.

Reporting by Chuck Mikolajczak; Editing by Jonathan Oatis

Our standards: The Thomson Reuters Trust Principles.

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