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

Dec 22 (Reuters) – Wall Street’s major averages closed lower on Thursday with the technology-heavy Nasdaq falling 2% leading losses as investors worried that data shows a strong economy will lead the US Federal Reserve to continue hiking interest rates longer than feared.

Micron Technology Inc’s glum forecast added to the downbeat mood and caused the semiconductor index (.SOX) to severely underperform the broader market for its biggest daily decline in more than a month.

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

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

Meanwhile, the Labor Department said filings for state unemployment benefits rose by 216,000 last week but were below economists’ estimates for 222,000.

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

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“We continue to have one of the major concerns in 2022 which is the response of the Federal Reserve to the high inflationary pressure of the concern about 2023, which is a recession occurring in the United States and probably around the world as well,” said by Matt Stucky, senior portfolio manager for equities at Northwestern Mutual Wealth Management Company.

“The data today, I think, pretty much confirms that this is the direction we’re headed,” Stucky said, adding that high inflation, a bad economy and a tight job market should lead those investors “in view of the fact that the revenue estimates are very 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) lost 56.05 points, or 1.45%, to 3,822.39 and the Nasdaq Composite ( .227.39 or 2). 2.18%, to 10,476.12.

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

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“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 see the weakness of the economy “soon because it gives the Fed the ability to stop.”

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

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

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

Micron itself finished up 3.4%.

Shares of Tesla Inc ( TSLA.O ) fell 8.9% after the electric-vehicle maker doubled the discount it offered on models in the United States this month, amid concerns of softening demand.

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CarMax Inc (KMX.N) fell 3.7% after the used-vehicles retailer halted share buybacks following an 86% quarterly profit plunge.

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 a preferred stock sale.

Issues outnumbered those advancing on the NYSE by a 3.78-to-1 ratio; on the Nasdaq, a 2.04-to-1 ratio favored the naysayers.

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

On US exchanges 10.88 billion shares changed hands, compared with the 11.24 billion average over 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: The Thomson Reuters Trust Principles.


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