Worries About Interest Rates, Economy Lead To Sell-Off On Wall Street

Stocks moved sharply lower during trading on Thursday, extending the pullback seen over the course of the previous session. With the sell-off on the day, the major averages slumped to their lowest closing levels in over a month.

The major averages climbed off their lows of the session in late-day trading but remained firmly negative. The Dow tumbled 764.13 points or 2.3 percent to 33,202.22, the Nasdaq plunged 360.36 points or 3.2 percent to 10,810.53 and the S&P 500 dove 99.57 points or 2.5 percent to 3,895.75.

Concerns about the outlook for interest rates continued to weigh on Wall Street after the Federal Reserve’s monetary policy announcement on Wednesday was deemed more hawkish than expected.

While the Fed raised interest rates by 50 basis points as widely expected, the accompanying statement and the central bank’s latest projections led to worries about where rates will peak.

A batch of disappointing U.S. economic data also added to concerns the Fed’s aggressive interest rate hikes will push the economy into a recession.

Before the start of trading, the Commerce Department released a report showing retail sales pulled back by more than expected in the month of November.

The Commerce Department said retail sales slid by 0.6 percent in November after surging by 1.3 percent in October. Economists had expected retail sales to edge down by 0.1 percent.

Excluding a steep drop in sale by motor vehicle and parts dealers, retail sales slipped by 0.2 percent in November after jumping by 1.2 percent in October. Ex-auto sales were expected to inch up by 0.2 percent.

A separate report released by the Federal Reserve unexpectedly showed a modest decrease in U.S. industrial production in the month of November.

The Fed said industrial production slipped by 0.2 percent in November after edging down by 0.1 percent in October. Economists had expected industrial production to inch up by 0.1 percent.

The unexpected dip in industrial production came as manufacturing output fell by 0.6 percent and mining output slid by 0.7 percent.

Meanwhile, a 3.6 percent spike in utilities output helped limit the downside amid unseasonably cold weather across much of the country.

Separate reports from the New York and Philadelphia Federal Reserves also showed contractions in regional manufacturing activity in the month of December.

“The 0.6% m/m falls in retail sales and manufacturing output in November suggest that the economy has lost some serious momentum, with the resilience of consumers to much higher interest rates starting to crumble,” said Andrew Hunter, Senior U.S. Economist at Capital Economics.

He added, “Solid gains in previous months mean real consumption growth should still be strong in the fourth quarter as a whole, but we expect the economy to slip into a mild recession in the first half of next year as the Fed’s relentless hawkishness takes its toll.”

Sector News

Computer hardware stocks showed a substantial move to the downside on the day, dragging the NYSE Arca Computer Hardware Index down by 5.4 percent to its lowest closing level in over a month.

Western Digital (WDC) helped lead the sector lower, plunging by 10.1 percent after Goldman Sachs downgraded its rating on the data storage company stock to Sell from Neutral.

Considerable weakness was also visible among gold stocks, as reflected by the 4.4 percent nosedive by the NYSE Arca Gold Bugs Index.

The sell-off by gold stocks came amid a steep drop by the price of the precious metal, with gold for February delivery tumbling $30.90 to $1,787.80 an ounce.

Semiconductor stocks also saw significant weakness on the day, dragging the Philadelphia Semiconductor Index down by 4.2 percent.

Software, networking, steel and airline stocks also showed notable moves to the downside, reflecting broad based weakness on Wall Street.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved mostly lower during trading on Thursday. Japan’s Nikkei 225 Index fell by 0.4 percent, while Hong Kong’s Hang Seng Index slumped by 1.6 percent.

The major European markets also moved to the downside on the day. While the U.K.’s FTSE 100 Index slid by 0.9 percent, the French CAC 40 Index and the German DAX Index plunged by 3.1 percent and 3.3 percent, respectively.

In the bond market, treasuries moved higher over the course of the session after ending yesterday’s trading roughly flat. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, slid 5.3 basis points 3.450 percent.

Looking Ahead

Following the avalanche of U.S. economic data this morning, the economic calendar is relatively quiet on Friday, potentially leading to choppy trading.

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