Wall Street stocks tumbled on Thursday as a round of upbeat economic data bolstered expectations that the Federal Reserve will continue to aggressively lift borrowing costs to fight inflation.
The gloom was deepened further by weak earnings news, including from chipmaker Micron Technology, which announced plans to axe 10 per cent of its workforce amid weaker demand, while used car dealer CarMax said it was halting buybacks and cutting costs after a four-fifths plunge in third-quarter net profit.
The S&P 500 closed 1.4 per cent lower, having fallen almost 3 per cent earlier. The tech-heavy Nasdaq Composite index slid 2.2 per cent. The S&P 500 is off a fifth this year, leaving Wall Street’s blue-chip benchmark on track for its worst year since the 2008 financial crisis, according to Refinitiv data.
Thinner, year-end trading conditions were also a factor behind the hefty falls as the holidays approached.
“No one wants to put on exposure at this point, everyone is just trying to finish the year,” said Jim Tierney, chief investment officer for US growth at fund manager AllianceBernstein.
He added: “The big issue in 2023 is going to be that now the Fed has done its thing, what does that mean for earnings growth?”
Micron’s news sent a raft of semiconductor-related stocks lower, including Nvidia, down 7 per cent. Elsewhere, Tesla was another big faller, off 8.9 per cent following the news that the carmaker had increased the discount it was offering on some models. That raised fears it too was facing weakening demand.
Before the market open, US third-quarter gross domestic product growth was unexpectedly revised to a 3.2 per cent annualised rate, from 2.9 per cent in November. Weekly initial jobless claims numbers were also lower than expected at 216,000, below the 222,000 forecast by economists.
The upward revision “[confirmed] the Fed’s assertion that the real economy is on strong enough footing to endure restrictive monetary policy for an extended period of time,” said Ian Lyngen, head of US rates strategy at BMO Capital Markets.
Wall Street’s declines early in the session hit European stocks, which had earlier wavered between small losses and gains. The Stoxx Europe 600 fell 1 per cent, while the UK’s FTSE 100 gave up earlier rises to trade 0.4 per cent lower. Earlier, the MSCI Asia Pacific rose 0.8 per cent, recovering some poise after the Bank of Japan’s shock decision on Tuesday to relax its policy of pinning bond yields near zero.
The signs of US economic strength also dented appetite for interest rate-sensitive short-term government debt. The two-year Treasury yield rose slightly to 4.28 per cent.
Longer-term government debt continued to be steady after being shaken by the BoJ’s surprise move. The 10-year US Treasury yield held roughly steady at 3.69 per cent, while yields in the eurozone and the UK climbed slightly.
In currency markets, the pound fell following data showing the UK economy contracted by a larger than expected 0.3 per cent in the third quarter from the previous three-month period. Sterling traded 0.4 per cent lower against the dollar at $1.203.
The figures suggested the anticipated downturn in the UK economy could arrive sooner than expected, said Investec economist Ellie Henderson.
“The question now is whether the economy manages to eke out growth in [the fourth quarter] and avoid a recession at the end of the year,” she said.