U.S. stocks fell on Thursday as Wall Street reeled from another big rate hike by Federal Reserve officials and weighed similar moves from monetary policymakers across the Atlantic. A disappointing reading on consumer spending also weighed on sentiment.
The European Central Bank and the Bank of England followed the lead of the US Fed by raising interest rates by 50 basis points on Thursday morning. The BoE hike took the country’s rates to their highest level since 2008.
The S&P 500 (^GSPC) slipped 2%, while the Dow Jones Industrial Average (^DJI) lost more than 600 points, or 1.8%. The tech-heavy Nasdaq Composite (^IXIC) fell 2.3%.
Yields on US Treasuries fell slightly, with the benchmark 10-year note falling below 3.5%. The U.S. dollar index rose and oil prices fell, with West Texes Intermediate (WTI) crude futures trading around $76 a barrel.
Meanwhile, the government’s retail sales report showed spending fell sharply in November as the key holiday shopping season kicked off. The latest retail sales reading showed a 0.6% decline from the previous month, but a 6.5% increase from the same period last year.
“Black Friday and holiday shopping weren’t enough to save retail sales last month as they fell the most this year and were well below expectations,” said construction manager Mike Loewengart. of Morgan Stanley’s model portfolio, in a note.
“The consumer has shown resilience amid high inflation and rising rates, but high prices and talk of a recession may now have some doubting their wallets,” he added. . “It’s been a busy week for investors with Fed and ECB rate hikes, so it should come as no surprise to see a choppy market.”
While a slowdown in retail spending showed signs of economic weakness, another economic release released early Thursday highlighted continued tightness in the labor market. Unemployment insurance claims unexpectedly fell last week to the lowest since September. Initial jobless claims, the most timely snapshot of the U.S. employment situation, came in at 211,000 for the week ended Dec. 10, down 11,000 from the revised level of the previous week, according to data from the Labor Department.
On the corporate front, Tesla (TSLA) stock stabilized on Thursday after declines all week, although a regulatory filing showed CEO Elon Musk sold around 21,995,000 shares of the company, or around $3.6 billion, in the three-day period ending December 14. Shares of Tesla are down around 20% in December so far and around 55% since the start of the year after the electric vehicle giant’s sell-off accelerated in recent days.
Shares of Lennar (LEN) also rose after earlier losses following the homebuilder’s earnings on Wednesday night which showed an 11% jump in fourth-quarter profits.
Thursday morning’s moves follow declines in major averages in the previous trading session after the Fed raised its benchmark interest rate by 50 basis points. Fed Chairman Jerome Powell also stressed that he and his colleagues would continue to raise rates in 2023 to reach an upwardly revised terminal rate of 5.1%.
Wednesday’s half-percentage-point hike, which took the federal funds rate to a range of 4.25% to 4.5%, marked a slowdown from increases of 75 basis points during each of the Fed’s last four policy meetings – the most aggressive period of hikes since the 1980s.
Despite a slowdown in the pace and magnitude of the increases, Powell continually asserted that the work of him and his colleagues to fight stubbornly high inflation was far from done.
“Now that we have raised interest rates by 425 basis points this year and are in restrictive territory, the speed at which we go is not so important anymore – it is much more important to think, what is the ultimate level?” Powell said during a press conference with reporters on Wednesday. “At some point the question will become, how long do we stay restrictive?
The Fed’s “dot chart,” which shows policymakers’ estimates for interest rates, showed that the federal funds rate would rise in 2023 to between 5.1% and 5.4% and that in 2024 it would still be at a median rate of 4.1% from a previous estimate. 3.9% – a change strategists point to is the biggest surprise revision to the central bank’s outlook.
“These estimates are significantly more hawkish than their previous forecasts and have not been dragged far in advance as is normally the case with the Fed,” William Blair macro analyst Richard de Chazal said in a rating.
Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter @alexandraandnyc
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