Wall Street tumbles on rate, recession worries, bleak chipmaker outlook

Dec 22 (Reuters) – Wall Street’s main average closed lower on Thursday with a 2% drop in the tech-heavy Nasdaq leading losses as investors worried data showing a resilient economy would prompt the US Federal Reserve to keep interest rates on hold for longer than feared.

Micron Technology Inc’s gloomy forecast added to the gloom and sent the semiconductor index (.SOX) sharply underperforming the broader market for its biggest daily decline in more than a month.

Losses in rate-sensitive growth stocks saw the technology (.SPLRCT) and consumer discretionary (.SPLRCD) indexes hit hardest among the S&P 500 (.SPX) 11 industrial sectors.

The final estimate of third quarter US gross domestic product was for annual growth of 3.2%, above the previous estimate of 2.9%.

Meanwhile, the Labor Department said filings for state jobless benefits rose to 216,000 last week but were below the economy’s estimate of 222,000.

And a third report showed the Conference Board’s leading indicator, a gauge of future US economic activity, fell for the ninth month in a row in November.

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“We’re moving past one of the big concerns of 2022 which is the Federal Reserve’s response to high inflationary pressures to concerns about 2023, which is a recession happening in the United States and possibly around the world as well,” said Matt Stucky, senior portfolio manager for equities at Northwestern Mutual Wealth Management Company.

“Today’s data, in my mind, pretty much confirms this is the direction we’re headed,” Stucky said, adding that high inflation, a bad economy and a tight job market should lead investors “to understand the reality that earnings estimates are too high” for 2023.

The Dow Jones Industrial Average (.DJI) fell 348.99 points, or 1.05%, to 33,027.49, the S&P 500 (.SPX) shed 56.05 points, or 1.45%, to 3,822.39 and the Nasdaq Composite (.IX3 or 2.3). 2.18%, to 10,476.12.

Recession concerns related to the Fed’s prolonged cycle of interest rate hikes have weighed on equities this year, with the benchmark S&P 500 (.SPX) on track for a 19.8% annual decline, which would be the biggest since the 2008 financial crisis.

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Traders work on the trading floor of the New York Stock Exchange (NYSE) in New York City, US, December 14, 2022. REUTERS/Andrew Kelly

“Strong economic data, especially strong labor market data, keeps the Fed’s foot on the economic brake,” said Liz Ann Sonders, Chief Investment Strategist at Charles Schwab who prefers to see economic weakness hit “sooner rather than later because it provides an opportunity to stop for a while.”

“You increase the risk of overshoot if they continue to be aggressive because the shot is bigger,” he said.

Before it pauses, the Fed is expected to find more weakness in the labor market and the economy to lower inflation and keep it sustainable.

The Philadelphia SE Semiconductor Index (.SOX) closed down 4.3% after falling as much as 6% earlier in the session. Lam Research ( LRCX.O ), the Micron equipment supplier, closed down 8.7% after leading the sector’s declines throughout the day.

Micron itself was down 3.4%.

Shares of Tesla Inc ( TSLA.O ) plunged 8.9% after the electric vehicle maker doubled its discount offers for models in the United States this month, amid concerns over weak demand.

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CarMax Inc (KMX.N) fell 3.7% after the used-vehicle retailer paused share buybacks following an 86% drop in quarterly profit.

Shares of AMC Entertainment Holdings Inc ( AMC.N ) fell 7.4% after the world’s largest movie theater chain said it would raise $110 million through the sale of preferred stock.

Declining issues outnumbered rising ones on the NYSE by a 3.78-to-1 ratio; on the Nasdaq, a ratio of 2.04 to 1 favors declines.

S&P 500 hits 1 new 52-week high and 23 new lows; The Nasdaq Composite posted 79 new highs and 405 new lows.

On US exchanges 10.88 billion shares changed hands, compared to an average of 11.24 billion for the past 20 trading days.

Reporting by Sinéad Carew in New York, Shubham Batra, Amruta Khandekar, Ankika Biswas and Johann M Cherian in Bengaluru; Editing by Shounak Dasgupta, Anil D’Silva and Aurora Ellis

Our Standards: Thomson Reuters Trust Principles.


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