U.S. equities fall as investors weigh rate hike prospects
Wall Street stocks tumbled on Thursday after central banks vowed to “keep the course” in the fight against inflation, and investors analyzed a new batch of data to understand the state of the US economy.
The underlying S&P 500 ended down 0.8%, while the high-tech Nasdaq Composite shed 1%.
Stock market moves on Thursday came after Lael Brainard, vice chairman of the Federal Reserve, said “it will take time and determination” to bring “high” inflation down to the U.S. central bank’s 2% target.
“We are determined to stay the course,” Brainard said at an event hosted by the Booth School of Business at the University of Chicago.
Earlier in the day, European Central Bank President Christine Lagarde said in a panel discussion at the World Economic Forum: “We will stay on course until . . . we can get inflation back to 2 percent in a timely manner.”
European equities closed lower, with the regional Stoxx 600 down 1.6%.
The stock index is falling on Thursday after the release of data giving the latest signals about the state of the world’s largest economy.
Initial U.S. jobless claims fell to 190,000 in the week ended January 14 from 205,000 the previous week, the report showed, indicating a resilient labor market despite the Fed’s efforts to tighten monetary policy. Economists polled by Reuters expected 214,000 lawsuits.
But a separate release on Thursday showed that the pace of US housing starts fell to a five-month low in December as higher mortgage rates weighed on demand.
A day earlier, weak US retail sales data and signs of a sharp decline in industrial production sent the S&P 500 down 1.6%.
Against the backdrop of growing confidence that inflation has peaked, fears have intensified about the possible depth of the expected recession and the impact of the Fed’s interest rate hike on corporate profits.
Microsoft’s announcement on Wednesday of plans to cut 10,000 workers only added to the bleakness, while shares in consumer goods conglomerate Procter & Gamble tumbled after Thursday’s report that net sales fell year-over-year in the final quarter.
“Bad news is bad news again,” said Charlie McElligott, Nomura strategist. Noting a relatively strong start for U.S. equities in 2023 amid an uncertain macro environment, Premier Miton chief investment officer Neil Birrell joked that he was “concerned that we’ve made full-year returns in the first two weeks.”
US Treasury bonds, which rose across the board in the previous session, came under some pressure on Thursday. The yield on the benchmark 10-year bond rose 0.02 percentage points to 3.4%.
German and Italian government bond yields also rose after Lagarde’s hawkish comments. Bond yields rise as their prices fall.
In other equity markets, Hong Kong’s Hang Seng fell 0.1% and China’s CSI 300 gained 0.6%, with both indexes rising sharply in recent months thanks to Beijing’s lifting of its strict Covid zero policy in December.
Brent crude, the international oil benchmark, rose 1.5%, offsetting previous losses, to trade at just over $86 a barrel.