Stocks dropped Friday, building on their year-end sell-off, as fears grow over a recession taking place as the Federal Reserve continues raising rates.
The Dow Jones Industrial Average lost 281.76 points, or 0.85%, to 32,920.46. The S&P 500 fell 1.11% to 3,852.36. Meanwhile, the tech-heavy Nasdaq Composite declined 0.97% to 10,705.41.
The indexes notched a second consecutive week of losses. The S&P 500 fell 2.08% for the week, and putting its December losses at 5.58%, as hopes for a year-end rally fizzle. The Dow and Nasdaq slid 1.7% and 2.7%, respectively.
Trading was especially volatile Friday with a large amount of options expiring. There were $2.6 trillion worth of index options expiring, the highest amount "relative to the size of the equity market in nearly two years," according to Goldman Sachs. At session lows, the Dow was down as much as 547.63 points, before paring back some of those losses.
The sell-off was broad-based, with three stocks falling for every advancer at the New York Stock Exchange. At one point, there were only 10 S&P 500 names in positive territory. The real estate and consumer discretionary sectors were the biggest laggards, down nearly 3% and 1.7%, respectively.
Stocks fell this week in the wake of the Fed's 50 basis point interest rate hike on Wednesday — the highest rate in 15 years. The central bank said it would continue hiking rates through 2023 to 5.1%, a larger figure than previously expected.
"At the beginning of the week, we had the hope, given the very soft CPI number, that we could expect the Fed, and maybe the other central banks of the world, to be less hawkish," Bokeh Capital founder Kim Forrest said.
"But because they didn't, and they had some stern words for investors and consumers alike that they were really focused on getting inflation down quickly, that has taken away a lot of our hope for a soft landing," Forrest added.
Stocks close lower Friday
Stocks closed out lower on Friday, with the Dow Jones Industrial Average losing 281.76 points, or 0.85%, to 32,920.46. The S&P 500 fell 1.11% to 3,852.36. Meanwhile, the tech-heavy Nasdaq Composite declined 0.97% to 10,705.41.
— Sarah Min
This week's sell-off reminiscent of June downturn, says investor
Paul Schatz, president of Heritage Capital, said this latest selling wave reminds him of the June downturn that sent the S&P 500 into bear market territory.
"While June's decline led to big summer rally, it was still in the context of a bear market," Schatz wrote in a post. The S&P 500 recovered from its June low, but dropped to its 2022 low in October.
"I have long argued that the October 13th bottom was either the end of the bear market or a low of significance. Both remain in play," he said.
— Fred Imbert
10-year Treasury yield rises
The 10-year Treasury yield rose as investors considered what is next for the U.S. economy.
The yield on the benchmark 10-year Treasury note was last up more than 3 basis points at 3.486%, after climbing back above the 3.5% level earlier in the day. The 2-year Treasury yield last dipped more than 5 basis points at 4.191%.
— Sarah Min
Stocks come off session lows in final hour of trading
Stocks pared back some losses heading into the final hour of trading, with the Dow Jones Industrial Average down 346 points, or 1.04%. The S&P 500 is off by 1.2%, while the Nasdaq Composite is lower by 1.09%.
Earlier in the day, the Dow was down as much as 547.63 points, or 1.65%. The S&P 500 was down 1.74%, and the Nasdaq Composite had declined 1.56%.
— Sarah Min
Jobs reports could be the new CPI in 2023, Wells Fargo strategist says
The jobs report could be the new CPI in 2023, according to Wells Fargo.
Christopher Harvey, head of equity strategy at Wells Fargo Securities, said the labor market has grown in significance following Federal Reserve Chair Jerome Powell's most recent press conference. The Fed chair cited the persistence of wage inflation, even as inflation in goods and shelter appear to be slowing down.
"As a result, we believe CPI could take a backseat to jobs reports in 2023 as the marginal driver of Fed hawkishness," Harvey wrote in a Friday note.
"In this case environment, bad news is 'good' news – but how long will it take before we get the bad news, and how well will the market hold up while it waits?," he added.
— Sarah Min
A Santa Claus rally could still show up, strategist says
A quarterly event called the "triple witching" is raising the level of volatility in markets Friday, but Santa Claus could still help markets rally into year-end, according to Quincy Krosby, chief global strategist at LPL Financial.
A large amount of options that are expiring on Friday is causing big swings for markets, with the Dow down more than 400 points in afternoon trading. There are $2.6 trillion worth of index options set to expire, according to Goldman Sachs.
Still, investors hopeful for a Santa Claus rally could get one next week.
"With the S&P 500 close to the key technical level of 3,900 – and now oversold by most measures – today's market could surprise to the upside especially given the surge expected in volume," Krosby wrote in a Friday note.
"Should today's market performance disappoint, however, Santa could arrive next week to provide holiday greetings and help underpin an even deeper 'oversold' rally, even if it's not within the technical definition of when he's supposed to arrive. The market doesn't care when he arrives, just that he actually shows up!" Krosby added.
— Sarah Min
BTIG's Krinsky says the short-term setup is 'tricky' for investors
It's a tricky set-up for investors navigating this week's market sell-off, according to Jonathan Krinsky.
The chief market technician at BTIG said he remains "cautious" on the big picture, but he expects markets could consolidate next week after this week's steep market losses. On Friday, the S&P 500 fell 1.6%.
"There is an unfilled gap on SPX at 3,818 from the November 10th CPI gap," Krinsky wrote in a Friday note. "Should we get down there, that would likely represent a decent bounce point. Our best guess is SPX finds some support in the 3,818-3,830 range, and we see some consolidation into early next week."
"Below 3,818 opens the door towards 3,750," he added.
Still, Krinsky identified some sectors such as industrials and semiconductors as "far from oversold," and expects they'll continue to see downside from here.
— Sarah Min
Short sellers in banks are covering positions as revenue spreads widen, S3 says
Short sellers are covering some of their positions in U.S. and Canadian money center banks after central banks in the U.S. and Europe raised benchmark lending rates half a percentage point this week, S3 Partners said in a note dated Thursday.
"Interest rate volatility has flattened or inverted shorter term yield curves and increased revenue spreads for the banking sector," S3 MD for predictive analytics Ihor Dusaniwsky wrote. Short interest in U.S. and Canadian banks dropped $4.34 billion or almost 13% in the past 30 days.
The largest short covering in U.S. banks, in order, came in Bank of America, JPMorgan, Citigroup and Wells Fargo. In Canada, short covering occurred most in Royal Bank, Bank of Montreal, CIBC and Bank of Nova Scotia.
The largest amount of outstanding short interest in any U.S. or Canadian bank remains Toronto-Dominion, which has $4.1 billion of its Canadian stock and $1.1 billion of its U.S. stock sold short.
S3 specializes in tracking short interest.
-- Scott Schnipper
Stocks accelerate losses in midday trading
Stocks accelerated losses in midday trading, with the Dow Jones Industrial Average falling 535 points, or 1.6%. The S&P 500 fell 1.7%, and the tech-heavy Nasdaq Composite declined about 1.5%.
— Sarah Min
Meta Platforms, Maxar Technologies among stocks making the biggest moves midday
These are some of the stocks making the biggest moves during midday trading Friday:
Maxar Technologies – Shares of the satellite owner and operator surged 122% following news that private equity firm Advent International will acquire the company and take it private in a deal valued at $6.4 billion.
Goldman Sachs — Goldman Sachs shares slumped 1% amid news that the Wall Street firm will cut up to 8% of its workforce.
Read the full list of stocks moving midday here.
— Samantha Subin
Quant firm AQR is up 40% in 2022, on track for best year ever
AQR Capital Management's Absolute Return Strategy has climbed 40.9% this year through November, on track to post its best year ever since the quant strategy was launched in 1998, according to a person familiar with the return.
Cliff Asness' favored investing styles, including value and trend following, made a big comeback during the volatile year. Bloomberg News first reported on AQR's returns Friday.
— Yun Li
Fed's Daly says 'nothing but hope' in inflation data, 'far away' from goal
San Francisco Federal Reserve President Mary Daly said Friday she sees the recent inflation news as welcome, but it's not enough to change her view on where policy needs to go.
The October and November readings for the consumer price index amounted to "good news," but "we don't see anything right now but hope in the inflation data, and I get confidence in evidence, not hope. So I'm hopeful we're on a good truck, but I won't be confident until I see repeated evidence that inflation is truly back on a path for 2% in the coming years," Daly said in a conversation hosted by the American Enterprise Institute.
"We are far away from our price stability goal," she added.
Earlier this week, the Fed raised its benchmark borrowing rate by half a percentage point, the seventh hike of the year that took the funds level to a target range of 4.25%-5%.
Daly, a nonvoter this year on the rate-setting Federal Open Market Committee, said her own expectations of where rates are headed is probably higher than current market pricing. Daly votes again in 2024.
Goldman Sachs embarks on Wall Street's deepest job cuts so far with up to 8% impacted
Goldman Sachs plans on laying off up to 8% of its employees as it girds for a tougher environment next year, according to a person with knowledge of the situation.
The job cuts will impact every division of the bank and will likely happen in January, according to the person, who declined to be identified speaking about personnel decisions.
That's ahead of an upcoming conference for Goldman shareholders in which management is expected to present performance targets.
Wall Street is adjusting to a lower revenue environment this year after a two-year boom in deals and hiring sputtered out. Goldman was the first major firm to cut jobs in September, a relatively shallow culling that only impacted a few hundred employees. That was followed by similarly modest cuts at Citigroup and Barclays, though Morgan Stanley cut about 1600 workers last week.
JPMorgan names Eli Lilly a top pick
Pharmaceutical stock Eli Lilly could be a big growth winner in 2023, according to JPMorgan.
Analyst Chris Schott named the stock one of the Wall Street firm's favored biopharmaceutical picks heading into the new year, calling Eli Lilly a "best-in-class growth story" with solid margin expansion opportunities driven in part by its Mounjaro diabetes drug.
"We are Overweight LLY given its best in class pharma growth profile and margin expansion opportunity, partially offset by rich valuation," he said in a note to clients Friday.
The pharma stock should also benefit from growth from its Verzenio and Taltz medications, respectively treating metastatic breast cancer and a form of psoriasis.
"We also forecast robust margin expansion through the rest of the decade as LLY leverages
its existing infrastructure to support its new product growth," Schott wrote. "We see the valuation premium as more than justified by Lilly's significantly higher top- and bottom-line growth relative to peers as well as the company's pipeline optionality.
Eli Lilly's shares are up about 29% this year and were slightly lower Friday. JPMorgan's $400 price target suggests the stock has more room to run, offering an 11% potential upside from Thursday's close,
— Samantha Subin
Bank of America names Nvidia as one of its top 2023 semi picks
The semiconductor space, which has taken a beating this year, could have a volatile start next year, according to Bank of America. However, continued estimate cuts and a potential shift in focus to a rebound in the last half of 2023 and 2024 could help drive outperformance, analyst Vivek Arya wrote in a note Friday.
One of his top picks is Nvidia, where estimates for 2023 have already been marked down from peaks, Arya said.
"Spending AI, high-speed electro-optics and 5G could be lumpy but still mission critical for global cloud customers," he said.
Shares of Nvidia are down about 43% year to date.
— Michelle Fox
Fed is making a 'terrible mistake' by hiking further, says Wharton's Siegel
Plans from the Federal Reserve to continue hiking rates into next year heighten the odds of a very difficult downturn ahead, according to Jeremy Siegel, professor of finance at the University of Pennsylvania's Wharton School of Business.
"I think the Fed is making a terrible mistake," he told CNBC's "Squawk on the Street" on Friday. "Their plan, their dot plot, is way too tight. Inflation is basically over, despite the way Chairman [Jerome] Powell characterizes it."
According to Siegel, the central bank should refrain from hiking further, or keeping rates elevated next year.
"Talk of going higher and staying high in 2023, I think would guarantee a very steep recession," he said.
— Samantha Subin
Real estate, utilities are the biggest laggards in the S&P 500
All sectors in the S&P 500 were posting losses Friday morning, with real estate, utilities and energy the biggest laggards in the broader market index.
Real estate was down more than 3%, while the utilities and energy sectors were off by more than 2%. Meanwhile, the S&P 500 was down 1.3%.
Communication services outperformed the other sectors, but was also off by 0.3%.
— Sarah Min
Only 15 names in the S&P 500 are in positive territory, Adobe and Meta outperform
The sell-off was broad-based on Wall Street, with only 15 names in the S&P 500 trading in positive territory during morning trading.
Shares of Adobe rose 4% after the design software firm posted fiscal fourth-quarter earnings and guidance that topped expectations.
Shares of Meta rose more than 3% after JPMorgan upgraded shares of the social media company to overweight from neutral.
Adobe is down nearly 40% in 2022, while Meta is off by 64%.
— Sarah Min
Delta can surge 20%, Goldman Sachs says
Goldman Sachs resumed coverage of Delta Air Lines with a buy rating and a price target implying 20% upside. The air carrier is best in the industry, according to the firm.
"DAL shares have performed at the better end of our US Airlines coverage universe this year, buoyed by improvements in international and corporate travel in addition to its relatively stronger balance sheet in light of rising rates," wrote analyst Catherine O'Brien in a Dec. 16 note.
JPMorgan upgrades Meta
Now is the time to snap up shares of Meta at a discount, according to JPMorgan.
The firm upgraded shares of the social media company to overweight from neutral and boosted its price target to $150 from $115 in a Dec. 16 note. That implies a nearly 30% upside from Thursday's close.
"Meta has been impacted by Apple privacy changes, TikTok competition, Reels headwinds, heavy hiring & expense growth, an uncertain build-out of the metaverse, and macro pressures," wrote analyst Doug Anmuth, adding that Meta has shed 65% this year, much worse than the broader market.
Stocks open lower Friday
Stocks were lower Friday morning as investors continued to sell into year-end on fears a recession is ahead next year because of the Federal Reserve's unrelenting rate hiking.
The Dow Jones Industrial Average lost 217 points, or 0.65%. The S&P 500 lost 0.6%, while the Nasdaq Composite fell 0.28%.
— Sarah Min
Deutsche Bank names Charles Schwab a top pick
Brokerage firm Charles Schwab is the best way to gain exposure to the asset management space in what could be a rocky 2023 for markets, according to Deutsche Bank.
Analyst Brian Bedell named Schwab its top pick in the industry, saying that investors could rely on the company for strong earnings.
"Overall, amid what we think may be a very volatile year in markets that could end with a strong rebound, we have the highest conviction on the earnings growth outlook for stock price appreciation for Charles Schwab (SCHW-Buy) followed by the alternative asset managers," Bedell said.
In particular, Deutsche Bank expects Schwab's net interest margin to expand next year even if the Fed cuts rates later in 2023.
Deutsche Bank also downgraded Invesco to hold from buy.
— Jesse Pound
Wolfe Research says expect downside into year end after fresh 21-day low in S&P 500
Investors can expect further downside into the year end, according to Wolfe Research.
The S&P 500 posted a fresh 21-day low on Thursday, confirming that the recent stock gains were "nothing more than another bear market rally," the firm's Rob Ginsberg wrote in a Thursday note.
"As we have discussed over the past few weeks, everyone - both bulls and bears alike, had been looking for upside into yearend," Ginsberg said.
"As we always say – 'markets have a very painful way of not rewarding the consensus' and Tuesday's violent reversal coupled with today's fresh 1-month low leaves us looking for healthy downside into yearend," Ginsberg added.
— Sarah Min
Stocks making the biggest moves premarket
Check out the companies making headlines before the bell:
- Accenture (ACN) – The consulting firm's shares fell 1.5% in the premarket despite beating estimates on the top and bottom lines for its latest quarter. Accenture issued a revenue range for the current quarter whose midpoint is below current consensus and said the stronger U.S. dollar will impact its fiscal 2023 results by 5%.
- Darden Restaurants (DRI) – The parent of Olive Garden and other restaurant chains reported better-than-expected profit and revenue for its latest quarter, and exceeded analyst forecasts for same-restaurant sales. Darden also raised the lower end of its 2023 earnings guidance range. Its stock rose 1% in premarket trading.
- Winnebago Industries (WGO) – Winnebago's quarterly results beat top and bottom line estimates, although profits declined from a year ago due to the impact of inflation and supply disruptions. The recreational vehicle maker's shares fell 1.5% in premarket action.
— Peter Schacknow
Canaccord Genuity sees Yeti, Traeger as winners in 2023
Amid a difficult first half of 2023, retail companies that play in growing trends like outdoor activity, the trade down to lower cost but quality items or provide a high-end quality product should do well, according to Canaccord Genuity.
One winner is Yeti Holdings, which will likely guide 2023 below consensus thanks to its conservative management team, analyst Susan Anderson wrote in a note Thursday. She rates the stock a buy and has a $58 price target, implying nearly 35% upside from Thursday's close.
"We believe the core YETI consumer should hold up relatively better in a recession as it skews a bit higher end," Anderson said.
She also likes Traeger and believes material growth for the grill industry will resume in the second half of 2023. She has a buy rating on the stock and a $6 price target, implying 102% upside from Thursday's close.
"After industry leader WEBR agreed to be taken private earlier this week, we believe COOK's three largest shareholders could consider a take-private deal of their own," Anderson wrote.
— Michelle Fox
Needham cuts Disney estimates, cites pressure from 'Avatar: The Way of Water'
Needham's Laura Martin cut her 2023 estimates for the Walt Disney Company, while retaining a hold rating on the beleaguered stock.
The analyst lowered her expectations for the first quarter of 2023 for the company, which includes the month of December, citing pressure from the "Avatar: The Way of Water" movie. Disney ended its most recent fiscal year in October 1, 2022.
"Much of the profit pressure in the Dec quarter came from the large marketing budget to launch Avatar, The Way of Water whereas revenue only began on the Dec 16th release date," she wrote.
Martin trimmed revenue expectations to $15.4 billion in the first quarter of 2023, which is 3% below her previous forecast. She expects operating income of $2.7 billion, which is down 17% year over year and 13% below her previous estimate. Meanwhile, she projects adjusted earnings per share of $1.18, up 11% year over year, and 2% below her previous forecast.
She also slightly lowered full year 2023 estimates to revenues of $92 billion, down 0.5% from her prior forecast. Operating income expectations were trimmed 6% to $13.3 billion. Adjusted earnings per share expectations declined 0.4% to $4.97.
Shares of Disney are down more than 41% in 2022, as investors worry about the outlook for the entertainment company ahead of a possible recession next year.
— Sarah Min
Darden Restaurants shares rise after earnings
Shares of Darden Restaurants rose more than 1% in premarket trading Friday after topping estimates on the top and bottom lines in its most recent earnings report.
The restaurant company behind Olive Garden and LongHorn Steakhouse reported earnings of $1.52 per share on revenue of $2.49 billion. Analysts polled by Refinitiv were forecasting earnings of $1.44 per share on revenue of $2.43 billion.
— Sarah Min
Stocks of blacklisted Chinese tech companies fall
Shares of Chinese technology companies listed on mainland exchanges fell in Asia trade after the U.S. government announced a list of companies that will face restrictions over their efforts to help modernize China's military.
Chinese artificial intelligence developer Cambricon Technologies' shares listed in Shanghai fell more than 4% in Asia's afternoon session after falling 6% in the morning.
China Electronics Technology Group also fell more than 2%.
Shenzhen-listed shares of Hangzhou Hikvision, the world's largest surveillance camera maker, fell 0.7%.
Meanwhile, WuXi Biologics, a company that manufactures ingredients for the AstraZeneca Covid vaccine, was removed from the list. Hong Kong-listed shares of the company rose more than 5% in Asia's afternoon.
— Jihye Lee
UBS upgrades outlook for China 2023 growth, downgrades 2022 forecast
UBS upgraded its outlook for China's 2023 gross domestic product to 4.9%, versus 4.5% previously, according to its chief China economist Wang Tao, citing an earlier and faster reopening in the nation.
Wang said the firm expects a weaker fourth-quarter GDP for 2022, downgrading its full-year forecast to 2.7% from 3.1%, pointing out November's weakened growth with a recent surge in Covid cases.
The firm added that the Central Economic Work Conference will likely prioritize stabilizing growth as well as supportive macro policies for the upcoming year.
"We expect fiscal policy to stay proactive with small increase of headline deficit and new special LG [local government] bonds, monetary and credit policy to keep supportive with continued ample liquidity but unlikely any additional policy rate cut," Wang said in the note.
— Jihye Lee
Big owners of U.S. Treasurys cutting back holdings as yields rise
Some of the biggest owners of U.S. government debt have pared back their holdings substantially, the Treasury Department reported Thursday.
Japan, China and the United Kingdom reduced their collective Treasury holdings by $91 billion in October as yields rose and investors worried about inflation. The Federal Reserve has been raising interest rates, and those increases have fed through to the Treasury market.
In all, major foreign holders of U.S. debt cut their portfolios by $110.6 billion for the month. Over the 12-month period from October 2021, the total fell by $475.3 billion, a 6.2% decrease. U.S. government debt increased during the period by $2.33 trillion, or just over 8%.
China in particular has been slicing its Treasury exposure, decreasing holdings by $155.8 billion, or 14.6% during the 12-month span.
The benchmark 10-year Treasury yield soared in that time, rising from around 1.48% on Oct. 1, 2021, to 4.1% by Oct. 31, 2022. Yields move opposite prices, meaning big jumps in yields eat into capital value of bondholders.
Adobe stock pops after hours on strong earnings
Adobe gained 5% in extended trading after the company offered a strong outlook when reporting earnings.
The company came in above analyst expectations for fourth-quarter earnings, according to Refinitiv. Revenue was in line with expectations for the quarter.
Adobe gave an optimistic outlook for the first quarter and full year at a time when many companies are reining in expectations.
For the first quarter, Adobe expects to earn $3.65 to $3.70 per share after adjustments on revenue of $4.60 billion to $4.64 billion. Analysts polled by Refinitiv had expected $3.64 in adjusted earnings per share and $4.64 billion in revenue.
The company also reaffirmed its full-year guidance for both measures.
— Alex Harring
Stock futures open lower
Stock futures opened lower as investors came off a second day of selling off.
Futures tied to the Dow lost 40 points or 0.1%.
S&P 500 and Nasdaq 100 futures both shed 0.1%.
— Alex Harring