Stocks sink after retail sales fall, even as inflation slows significantly

Traders work on the floor of the New York Stock Exchange on January 18.

US stocks had a rough Wednesday. The market sank as investors ignored good news (the continuing moderation of inflation) and focused on bad news (weak retail sales and low industrial production figures) instead.

Worries are growing that the economy may be heading towards a more pronounced slowdown as a result of last year’s aggressive rate hikes by the Federal Reserve. 

The Nasdaq’s seven-day winning streak came to an end, too. Shares of tech bellwether Microsoft (MSFT) fell after the software giant announced it was laying off 10,000 workers.

The Dow fell nearly 615 points, or 1.8%.

The S&P 500 ended the day down 1.6%. 

The Nasdaq Composite edged 1.2% lower. 

As stocks settle after the trading day, levels might still change slightly.

The Federal Reserve on Wednesday dropped its first Beige Book for 2023, and the latest report card from the central bank’s dozen districts shows that economic activity has been “relatively unchanged” since November and that businesses and consumers expect “little growth in the months ahead.”

Below are some notable findings:

A general view of the New York Stock Exchange on Wall Street on January 18.

The US economy is in a bit of a funk. The Federal Reserve said in its latest Beige Book report that Americans “generally expected little growth in the months ahead.”

Investors, of course, were not pleased by that assessment. Stocks fell near their lowest levels of the day Wednesday afternoon following the release of the report.

The big problem for the markets right now: While traders are happy to see news that will allow the Fed to keep raising interest rates by only a quarter of a point at a time, there are growing fears that the Fed’s previous (much larger) rate hikes are already starting to grind the economy to a halt.

Instead of a soft landing or mild recession, investors are nervous that a coming downturn could be more severe — like the 2008 Great Recession.

The Dow lost nearly 450 points, or 1.3%.

The S&P 500 was down 1.1%. 

The Nasdaq Composite fell 0.8%. 

It’s been a wild Wednesday on Wall Street.

Stocks took a nasty turn for the worse after opening slightly higher. Investors were initially excited by data showing continued slowdown in inflation — but then surprisingly weak readings for retail sales and industrial production stoked fears that the economy may be cooling more quickly than expected.

Just two Dow components were trading higher Wednesday afternoon: Goldman Sachs (GS) and insurance giant Travelers (TRV). Both were losers on Tuesday due to weak earnings and outlooks, but they rebounded a bit Wednesday.

The Dow fell nearly 400 points, or 1.1%.

The S&P 500 was down 0.8%. 

The Nasdaq Composite was 0.6% lower. 

A trader seen working on the floor of the New York Stock Exchange during opening bell today.

So much for a market rally. Stocks opened higher following the latest data on inflation and retail sales, but the Dow was down more than 275 points, or 0.8%, in late morning trading. The S&P 500 was off 0.5% and the Nasdaq was down 0.3%.

There were no clear catalysts for the market pullback. But disappointing earnings from regional banking giant PNC (PNC) and brokerage giant Charles Schwab (SCHW) weighed on financial stocks.

Jerome Powell during a Central Bank Symposium at the Grand Hotel in Stockholm, Sweden on January 10.

Federal Reserve Chair Jerome Powell has Covid, the Federal Reserve said Wednesday. 

“Federal Reserve Board Chair Jerome H. Powell tested positive for Covid-19 and is experiencing mild symptoms,” the central bank said in statement on Wednesday. 

The Fed added that the 69-year-old Powell is up to date with all his vaccines, and that he is isolating at home and working remotely, per guidance from the Centers for Disease Control and Prevention.

The Fed’s next two-day policy meeting kicks off January 31.

The global economy is showing signs of resilience, even as growth slows in 2023, according to the Managing Director of the IMF.

Speaking to Julia Chatterley at the World Economic Forum in Davos, Kristalina Georgieva said, “We said that 2023 would be difficult but what we are saying now is that it will not be as bad as feared.”

On inflation, she explained “we have seen the peak in headline inflation … indicators are that inflation is trending downwards and that is a reason to celebrate”.

But she cautioned that it’s too soon to claim victory: “While inflation is trending down it is way, way above the target of 2%”.

A Boeing 737-700 United Airlines flight landing at the new Terminal A at Newark Liberty International Airport in Elizabeth, N.J., on Thursday, January 12.

United Airlines posted better-than-expected earnings and revenue for the fourth quarter and gave very bullish forecasts for the current quarter and full year results.

The Chicago-based airline had adjusted income of $811 million, or $2.46 a share in the quarter. Analysts surveyed by Refinitiv had forecast earnings per share of $2.10 in the quarter. The profit gave United its first profitable year since the start of the pandemic.

Revenue reached $12.4 billion, topping not only forecasts of $12.2 billion, but a 14% increase from revenue of $10.9 billion in the fourth quarter of 2019, ahead of the pandemic. Its revenue grew even though its capacity, as measured by available seats, adjusted for miles traveled, was still nearly 10% below the fourth quarter of 2019. But the amount passenger paid for each mile flow rose by 25%.

United said it expects to adjusted earnings per share of 50 cents to $1 in the first quarter, typically the weakest period of the year, and full year EPS of $10 to $12, allowing it to quadruple the 2022 EPS of $2.52 and putting the it within reach of the $12.05 per share it earned in 2019. All those projections from United beat analysts’ consensus forecasts of 46 cents a share for the first quarter and EPS of $6.92 for the full year.

Despite the strong results and guidance shares of United were little changed in early trading Wednesday.

People make their way past a Microsoft store on October 26, 2022 in New York City.

Microsoft plans to lay off 10,000 employees as part of broader cost-cutting measures, the company said in a securities filing on Wednesday, making it the latest tech company to rethink staffing amid economic uncertainty.

The company said the cuts come “in response to macroeconomic conditions and changing customer priorities.”

Speaking before the layoff announcement at the World Economic Forum (WEF) in Davos, Switzerland, on Wednesday, Microsoft CEO Satya Nadella said that the company was not immune to a weaker global economy.

Read more

Chair of the Board of Governors of the Federal Reserve System Jerome Powell during a Central Bank Symposium panel at the Grand Hotel in Stockholm, Sweden, on January 10.

The latest batch of economic data showed that inflation is becoming less of a concern … but that Americans also spent less in December. That’s probably music to the ears of Federal Reserve chairman Jerome Powell and other central bankers.

The Fed is now almost certain to announce “just” a quarter of a percentage point, or 25 basis points, interest rate hike following a two-day meeting that wraps up on February 1. According to closely watched fed funds futures on the CME, traders are pricing in a more than 96% chance of a 25 basis point increase. That’s up from the nearly 95% odds on Tuesday and 77% probability a week ago.

Investors are betting that the Fed will be able to eventually stop raising rates sometime later this year if the economy continues to cool and inflation pressures ease. Some traders are even holding out hopes that the Fed will lower interest rates later this year if there are signs of a recession. But Powell has given no indication that the Fed is about pivot to rate cuts.

US stocks opened higher on Wednesday after a key report showed that inflation, although still high, eased in December. 

The moves came after the Producer Price Index, which is considered a leading indicator of future inflation, fell by 0.5% in December, much higher than the 0.1% decline expected by analysts. The drop buoyed investors’ spirits as they hope it means Federal Reserve policymakers will soon ease up on painful interest rate hikes. 

The Commerce Department reported Wednesday that retail sales continued their slide in December, falling the most in a year. Practically every category saw lower sales than the previous month, indicating that US shoppers are starting to pull back amid punishing inflation and historically high interest rates. Investors processed the data to mean the Fed’s policy actions to slow economic growth and inflation are working.

Shares of United Airlines, meanwhile, jumped 2.5% after the company beat earnings estimates on Wednesday. Shares of Moderna rose 6.1% after the company announced that its RSV vaccine can prevent the disease in adults. 

The Dow was up 65 points, or 0.2%, on Wednesday.

The S&P 500 gained 0.4%. 

The Nasdaq Composite was 0.8% higher. 

Shoppers in San Francisco, California, on December 21, 2022. 

US retail sales continued to fall in December, dropping by 1.1% amid high inflation, the Commerce Department reported Wednesday.

Economists had expected sales to fall 0.8% for the month, according to Refinitiv. The November number was revised down to -1%.

Annual retail sales were up 6% in December from the year prior. That’s unchanged from November. The data is not adjusted for inflation.

An exterior view of the New York Stock Exchange on Wall street on January 4.

Stocks appear set for a higher open Wednesday after the US government reported that another key measure of inflation is slowing and that consumer spending is also dipping.

Dow futures were up about 75 points, or 0.2%, following the reports. S&P 500 and Nasdaq futures each rose about 0.3%. Futures were fairly flat before the morning’s data deluge.

Investors are betting that a continued decrease in the rate of inflation, coupled with signs of consumer strain, could lead the Federal Reserve to raise rates by just a quarter-of-a-percentage point when it announces its next rate decision on February 1.

Wholesale price growth cooled off significantly in December, the Bureau of Labor Statistics reported Wednesday, indicating that the Federal Reserve’s aggressive interest rate hikes may finally be bringing price pressures under control.

The Producer Price Index, a key inflation metric that measures prices paid for goods and services by businesses before they reach consumers, rose 6.2% in December compared to a year earlier. That’s way down from the revised 7.3% gain reported for November.

The latest reading was much lower than Wall Street’s expectations. Economists surveyed by Refinitiv had forecast a 6.8% annual increase.

U.S. Treasury Secretary Janet Yellen shakes hands with Chinese Vice Premier Liu He as they meet for talks in Zurich, Switzerland, on January 18.

US Treasury Secretary Janet Yellen met with Chinese Vice Premier Liu He in Zurich, Switzerland Wednesday “as part of efforts to deepen communication and work together to address global challenges,” according to a readout from the US Treasury Department.

The conversation was described as “candid, substantive, and constructive,” and Yellen “looks forward to traveling to China and to welcoming her counterparts to the United States in the near future,” according to the readout. 

The two parties “exchanged views on macroeconomic and financial developments.”

“Both sides agreed it is important for the functioning of the global economy to further enhance communication around macroeconomic and financial issues,” the readout said. 

“They also agreed about the importance of sustainable development and that they would enhance cooperation on climate finance on a bilateral and multilateral basis, such as within the UN, G20, and APEC, as well as through support for emerging markets and developing countries in their clean energy transitions,” it continued. “Secretary Yellen also raised issues of concern in a frank exchange of views.”

Their meeting follows President Joe Biden’s meeting with Xi Jinping in Bali and comes ahead of Secretary of State Antony Blinken’s visit to China early next month. 

US stock futures held steady ahead of reports on inflation and retail sales. Dow futures were down 20 points or 0.1%. S&P 500 futures were flat. Nasdaq futures were 0.1% lower 

Fear & Greed Index: 65 = Greed 

Oil & gas: US oil prices fell 1.7% to $82 a barrel. Average US gas prices ticked up to $3.36 a gallon. 

A shopper views televisions for sale on Black Friday in Chicago, Illinois, on November 25, 2022. 

Americans have already started to rein in their spending — and expect to pull back some more this year, according to a Federal Reserve Bank of New York survey released Tuesday morning.

Monthly household spending growth, after hitting a series high of 9% in August, fell to 7.7% in December, according to the New York Fed’s latest household spending survey.

However, that’s still well above December 2021 and pre-pandemic levels of 5.1% and 2.5%, respectively, according to the survey, which is released every four months.

Still, the survey showed a slight pullback in large purchases: The number of respondents who bought a vehicle fell to the lowest level since August 2020, when car sales dipped during the pandemic.

The drop in spending activity is expected to continue through this year, the survey showed.

Read more

People shop at a supermarket in Urumqi, in China's northwestern Xinjiang region, following the easing of Covid-19 restrictions in the city, on December 5, 2022.

Bullishness about the global economy has been in short supply among business leaders in recent months, with fears of recession clouding the outlook and restraining investment. Now, cautious optimism is peeking through.

That’s thanks in large part to China, whose sudden removal of strict coronavirus restrictions late last year is expected to unleash a wave of spending that may offset economic weakness in the United States and Europe.

“The reopening of China has to be the major event and it will be a major driver of growth,” Laura Cha, chair of Hong Kong Exchanges and Clearing, said at the World Economic Forum in Davos, Switzerland on Tuesday.

It’s an assessment shared by plenty of others attending the annual gathering of executives, billionaires and politicians in the Swiss mountain resort, in contrast with the WEF’s survey of chief economists published Monday showing two-thirds of them think a recession in 2023 is likely.

Read more

Global politics will be dominated by the availability, trade and investment in microchips for the next several decades, Intel CEO Pat Gelsinger told CNN Tuesday.

The location of “oil reserves [has] defined geopolitics for the last five decades,” Gelsinger said in an interview with CNN’s Julia Chatterley at the World Economic Forum in Davos. “Where the technology supply chains are, and where semiconductors are built, is more important for the next 5 decades.”

Gelsinger said the company’s investment in new manufacturing facilities in the United States, Europe and elsewhere is important not only for the company’s future, but for the “globalization of the most critical resource to the future of the world.”

“We need this geographically balanced, resilient supply chain,” he said.

Read more