U.S. stock markets plummeted on Wednesday after the threat of a recession in 2023 significantly dented investors’ confidence on risky assets like equities. A series of weak economic data and hawkish comments by top-level Fed officials destroyed market participants’ sentiment. All the three major stock indexes closed deep in negative territory.
How Did The Benchmarks Perform?
The Dow Jones Industrial Average (DJI) tumbled 1.8% or 613.89 points to close at 33,296.96. Notably, all 30 components of the 30-stock index ended in negative territory. The blue-chip index posted its worst single-day performance so far in 2023 and the biggest daily decline over a month.
The tech-heavy Nasdaq Composite finished at 10,957.01, sliding 1.2% or 138.10 points due to weak performance of large-cap technology stocks. The tech-laden index terminated a seven-day winning streak.
The major gainer of Nasdaq Composite was The Kraft Heinz Co. (KHC – Free Report) , shares of which climbed 6.3%. The stock currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The S&P 500 dropped 1.6% to end at 3,928.86. All 11 broad sectors of the benchmark index closed in negative territory. The Consumer Staples Select Sector SPDR (XLP), the Utilities Select Sector SPDR (XLU), the Industrials Select Sector SPDR (XLI), the Financials Select Sector SPDR (XLF) and the Energy Select Sector SPDR (XLE) plummeted 2.7%, 2.4%, 1.9%, 1.9% and 1.8%, respectively.
The fear-gauge CBOE Volatility Index (VIX) was up 5.1% to 20.34. A total of 11.76 billion shares were traded on Wednesday, higher than the last 20-session average of 10.45 billion. Decliners outnumbered advancers on the NYSE by a 1.88-to-1 ratio. On Nasdaq, a 1.98-to-1 ratio favored declining issues.
Weak Economic Data
The Department of Commerce reported that retail sales fell 1.1% in December, higher-than the consensus estimate of a decline of 0.9%. November’s data was revised downward from a drop of 0.6% reported earlier to a drop of 1%. However, year over year, retail sales were still up 6% in December. The department stores sales dropped 6.2% while the online sales fell 1.1%.
Core retail sales (excluding auto) fell 1.1% in December, higher-than the consensus estimate of a decline of 0.5%. November’s data was revised downward from a drop of 0.2% reported earlier to a drop of 0.6%.
National Retail Federation (NRF), the largest industry body, reported that holiday retail sales (including November and December 2022) grew 5.3% year over year to $936.3 billion. However, the latest prediction of NRF was for a growth of 6% to 8% year over year or $942.6 billion to $960.4 billion. NRF now expects retail sales to drop further in January 2023.
Industrial production fell 0.7% in December, significantly higher-than the consensus estimate of a decline of 0.1%. November’s data was revised downward from a drop of 0.2% reported earlier to a drop of 0.6%. Year over year, industrial production fell 1.7% in fourth-quarter 2022.
Notably, December marked the largest monthly decline in industrial production since September 2021. Manufacturing production fell 1.3% in December after a 1.1% drop in the prior month. Mining output, which includes oil and natural gas, fell 0.9% in December after a 1.2% fall in the prior month. Utilities output surged 3.8% in December owing to cold weather.
Capacity utilization, which reflects the limits to operating the nation’s factories, mines and utilities, came in at 78.8%, lower-than the consensus estimate of 79.6% in December. November’s data was revised downward to 79.6% from 79.4% reported earlier.
The Department of Labor reported that the producer price Index (PPI) dropped 0.5% in December, marking its biggest monthly decline since April 2020. The consensus estimate was for a drop of 0.1%. November’s data was revised downward from a gain of 0.3% reported earlier to 0.2%.
Year over year, headline PPI rose 6.2%, marking the lowest annual increase since March 2021 and a considerable decline from the 10% annual increase in 2021. The core PPI (excluding volatile food and energy items) rose 0.2% in December, higher-than the consensus estimate of 0.1%.
Hawkish Comments by Fed Officials
St. Louis Fed President James Bullard said that the Federal Reserve should not refrains from raising the benchmark interest rates until they are above 5%. Cleveland Federal Reserve President Loretta Mester said that interest rates have to keep moving higher even though inflation seems softening.
Following these hawkish comments by Fed officials, market participants are expecting a recession in 2023. Consequently, the yield on the benchmark 10-Year U.S. Treasury Note fell as low as 3.372%, the lowest since Sep 13. The yield on the short-term 2-Year U.S. Treasury Note reached 4.072%, the lowest since Oct 4.