S&P 500 posts worst day in more than a month, Dow closes 600 points lower

All of the major averages ended the day lower on Wednesday.

The Dow Jones Industrial Average fell 613.89 points, or 1.81%. The S&P 500 lost 1.56% and the Nasdaq Composite slid 1.24%.

— Tanaya Macheel

Morgan Stanley is staying bullish on shares of Apple, viewing the iPhone maker as a beneficiary during both difficult and improving economic cycles.

"We see Apple as a rare best-of-both worlds outperformer - a more defensive, quality name during challenging times, but an outperformer in the early cycle," wrote analyst Erik Woodring in a note to clients Wednesday.

Despite concerns of slowing consumer electronics demand, Woodring said investors are undervaluing the strength of Apple's growing installed base and spend per user. The launch of the iPhone 15, in particular, and a potential hardware subscription offering later this year, could push the stock toward Morgan Stanley's bull case $235 target, he added.

The bank also upgraded shares of Seagate Technology to overweight from an equal-weight rating, saying that the company should see an early cycle recovery in the second half after moving past its inventory problems.

"While STX has been challenged by inventory corrections at customers, COVID lockdowns in China, and weakening consumer demand, we believe now is the time to get more constructive, as we believe we're nearing an [hard disk drive] industry bottom and soon move to the early cycle period," Woodring wrote.

Morgan Stanley lifted its price target to $69 from $54 a share, reflecting 21% upside from Tuesday's close

— Samantha Subin

Bed Bath & Beyond has been in discussions with prospective buyers and lenders ahead of a likely bankruptcy filing, according to a report by CNBC's Lillian Rizzo and Gabrielle Fonrouge.

The beleaguered retailer is looking for potential financing to stay afloat during a bankruptcy proceeding and a possible buyer, according to people familiar with the matter.

Shares of Bed Bath & Beyond trimmed their losses following the report but are still down about 3% on the session.

— Jesse Pound

Investors should brace themselves for stocks' strong start to the year to be short-lived and tame hopes that inflation is peaking, says UBS Global Wealth Management CIO Mark Haefele.

"Risk assets have had a positive start to 2023, with investors encouraged by signs of fading inflation and a swift reopening in China," he said in a note Wednesday. "A relatively warm winter has also eased concerns over energy shortages in Europe."

"It remains too early to assume that the inflation threat has fully passed. While December headline inflation data in both the US and Eurozone continued to point to a deceleration, core inflation has still remained well above central bank targets."

— Tanaya Macheel

Negative operating leverage could become apparent this corporate earnings season — and it will catch some investors off guard, according to Mike Wilson, chief investing officer at Morgan Stanley.

He said investors think falling inflation is solely good for stocks, when in reality it could hit operating profitability of companies that investors hold.

"It really ties into the whole fire-and-ice narrative," Wilson said on CNBC's "Squawk on the Street." "People are assuming that falling inflation is only good for stocks, and we have the exact opposite view, which is if falling inflation is good for perhaps Fed policy and valuations ... it could be really, really bad for operating profitability."

Wilson added that some investors may see a downturn in earnings as a one-quarter issue and something that can be overlooked, but earnings could move so low that the impact cannot be ignored.

— Alex Harring

Cathie Wood's flagship ARK Innovation ETF, with $6.7 billion in assets under management, has suffered $204 million in outflows this month so far. The start of the year could be an important time for investors to put money to work and and flows can indicate the level of confidence. In January last year, the technology-focused fund reeled in $238 million in inflows.

Wood's fund plunged 66% in 2022 as her disruptive darlings got hit particularly hard by rising rates. Many of its constituents including Coinbase, Twilio, Roku, Teladoc and Tesla have dropped about 60% from their 52-week high. The ETF has rebounded more than 16% this year.

— Yun Li

Mizuho upgraded Sweden-based oat drink company Oatly Group to buy from neutral Wednesday, citing its belief that bearish sentiment on the stock has peaked.

While the Wall Street firm doesn't see free-cash-flow positive operations until the second half of 2024, liquidity tightness seems manageable, analyst John Baumgartner wrote in a note.

He's also bullish on the secular growth of plant-based beverages.

"We enter 2023 with our conviction reinforced for a PBBs global CAGR of +9% through 2027E and that oat milk is poised to outperform given widespread cultural familiarity, consumption versatility in liquid form, and lower cost of production," Baumgartner said.

Oatly shares lost 78% in 2022 but are up about 50% so far this year.

— Michelle Fox

Check out the companies making the biggest headlines in midday trading:

• Microsoft — Shares of the technology giant moved 1% lower after it announced plans to cut 10,000 jobs through March 31 in an attempt to trim costs as economic uncertainties linger and growth slows. Microsoft also said it's taking a $1.2 billion charge connected to lease consolidation and other activities.
• Mobileye — Shares of the assisted driving company gained 8% after Deutsche Bank initiated coverage of the stock as a buy. The firm said Mobileye's technology was superior and could help the company become a Tier 1 auto supplier.
• Oatly Group — Shares of Oatly Group fell nearly 2%, losing steam after Mizuho upgraded the stock to buy from neutral. The firm said improving capacity should accelerate growth for the plant beverage company.

Read the full list here.

— Sarah Min

Cleveland Federal Reserve President Loretta Mester said Wednesday that interest rates have to keep moving higher even with recent inflation readings softening.

In an interview with the Associated Press, the policymaker said the Fed likely will have to take its benchmark interest rate above 5% in order to get inflation moving consistently down to the central bank's 2% goal. She noted that markets and the economy absorbed the half-point December rate hike without a problem.

"I just think we need to keep going, and we'll discuss at the [Jan. 31-Feb. 1] meeting how much to do at any one particular meeting," Mester said. "But my projections and my view of the economy is that we need to do more, we need to get above 5% and then hold it there for some time until we get inflation expectations very well anchored at 2% ... and inflation on that downward path."

The fed funds rate is currently targeted in a range between 4.25%-4.5%.

—Jeff Cox

The early January 2023 rally that drove up the Dow Jones Industrial Average, year-to-date, by as much as 3.6% at one point, started to crack on Tuesday, and then rolled over further on Wednesday.

The Dow peaked Tuesday as did, technically, the S&P 500 (which brushed up against Tuesday's 4015 high again on Wednesday). The S&P was up 4.6% for the year at that point.

The bigger, "risk on" rallies in the Nasdaq Composite (up as much as 7.2% against the 2022 close) and the Russell 2000 index of smaller market cap stocks (higher by as much as 8.1%), rolled over later — peaking on Wednesday.

For the time being anyway.

— Scott Schnipper

Citi said investors have come to expect best-in-class returns from Morgan Stanley. That expectation means there's little further upside for the stock.

"In our view, the market is pricing in best in class returns and we do not see significant relative upside," Citi analyst Keith Horowitz said in a Tuesday note.

His price target of $100 implies the stock will just 3% from where it closed Tuesday.

CNBC Pro subscribers can read the full story here.

— Alex Harring

Holiday sales numbers came in lighter than expected for 2022, according to data from the National Retail Federation.

The industry group said sales in November and December were up 5.3% year over year. The NRF had projected growth between 6% and 8%.

The data does not include spending at automobile dealerships, gasoline stations and restaurants. The sales numbers are not adjusted for inflation.

— Jesse Pound, Melissa Repko

Southwest shares fell 2% amid news that the company's pilots union is calling a vote to approve a potential strike.

The news comes just weeks after the airline carrier suffered a holiday disaster as winter storms wreaked havoc across the country.

The union's president, Casey Murray, wrote that they are negotiating "gratitude pay to compensate our Pilots who suffered through the meltdown."

— Leslie Josephs, Samantha Subin

Oil service stocks, too, are riding the latest wave of China reopening/soft landing enthusiasm.

The VanEck Oil Services ETF (OIH) added 1.2% early Wednesday, reaching its highest since April 2019 and bringing the 2023 year-to-date rally to more than 15%. Among individual stocks, Transocean (RIG), SLB (the former Schlumberger), Tenaris (TS) and Valaris (VAL), Helix Energy (HLX) and Oceaneering International (OII) all hit new 52-week highs.

— Scott Schnipper, Gina Francolla

Federal Reserve Chairman Jerome Powell tested positive for Covid-19 and is experiencing "mild symptoms," the central bank said Wednesday.

"Chair Powell is up to date with COVID-19 vaccines and boosters. Following Centers for Disease Control and Prevention guidance, he is working remotely while isolating at home," a news release said.

— Jeff Cox

Here are the shares hitting fresh highs as markets climb following better-than-expected inflation data.

• Tapestry is trading at levels not seen since Dec, 2021
• Ulta is trading at all-time high levels back to its IPO in October, 2007
• Hess is trading at all-time highs back to its merger with Cletrac and public listing on the NYSE in 1962
• SLB is trading at levels not seen since Oct, 2018
• Arch Capital Group is trading at all-time high levels back to when it began trading on the NASDAQ in 2000
• General Electric is trading at levels not seen since Nov, 2021
• United Airlines is trading at levels not seen since Nov, 2021
• CDW Corp is trading at levels not seen since Jan, 2022

 There's also one stock hitting a fresh low.

• L3Harris Technologies is trading at lows not seen since Mar, 2021

—Carmen Reinicke, Chris Hayes

You'd almost think they were trading in inverse lockstep, but the DXY Dollar Index slid to its lowest since late May on Wednesday at the same time as a group of key industrial metals surged to their highest price since June.

To be specific, the dollar index sank to its lowest since May 31, with the greenback hurt by weaker-than-expected wholesale prices and retail sales in December and multi-month lows in two- and 10-year Treasury yields.

At the same time, copper and aluminum extended their recent rallies, climbing to the highest since June. So far in 2023 alone, copper prices are higher by more than 13%.

Among base metal stocks and ETFs, the Global X Copper Miners ETF is ahead 3.2% in early Wednesday trading and Freeport-McMoRan added 3.5% (and up almost 21% year to date).

— Scott Schnipper, Gina Francolla

Microsoft shares rose slightly Wednesday after the software giant said its laying off 10,000 employees as it grapples with slowing revenue growth.

The company joins a slew of tech behemoths that have recently reduced their workforces as the economy slows, demand dwindles and inflations persists.

The reductions are expected to take place through March 31. Microsoft also said it would take a $1.2 billion charge.

— Samantha Subin

Stocks opened higher on Wednesday.

The Dow Jones Industrial Average rose 37 points, or 0.1%. The S&P 500 added 0.2% and the Nasdaq Composite advanced 0.6%.

— Tanaya Macheel

The yield on the benchmark 10-year Treasury note tumbled below 3.44% after December's producer price index showed a larger-than-expected decline in wholesale prices.

The yield on the 10-year last traded 10 basis points lower at 3.439%, while the yield on the 30-year Treasury bond dropped around 7 basis points to 3.573%.

Yields move inversely to prices.

— Samantha Subin

Retail and food service sales for December dropped 1.1% from the prior month, according to data released Wednesday in the Advance Monthly Sales for Retail and Food Service report.

That marks a larger drop than in November, which brought a month-over-month slide of 0.6%. And it's a slightly bigger move than the loss of 1% expected by economists polled by Dow Jones.

The report is meant to provide an early indication of sales trends in retail and food service companies.

— Alex Harring

The producer price index, a measure of prices received at the wholesale level, fell 0.5% in December. The inflation measure slipped by more than analysts expected, showing that prices are decreasing amid the Federal Reserve's rate hikes.

A 1.6% decline in prices for final demand goods weighed down the total index, according to the Wednesday report by the Bureau of Labor Statistics. On the flip side, the index for final demand services rose 0.1%.

Economists expected that the index would rise 0.1% on the month and be 5.5% higher on the year, signaling a slowdown in price increases.

—Carmen Reinicke, Jeff Cox

Here are the stocks making the biggest moves in early morning trading.

• Moderna – Moderna rose 7.5% after the pharmaceutical company said Tuesday that its RSV vaccine is 84% effective in preventing disease in older adults.
• Oatly — The food stock jumped 6.7% following an upgrade by analysts at Mizuho, citing improving liquidity.
• PNC Financial — The regional bank fell more than 4% after PNC's fourth quarter results missed Wall Street estimates.
• GoDaddy — GoDaddy's stock gained about 4% following an upgrade to outperform from and line at Evercore ISI.

For further details and more big movers check out the full list here.

— Samantha Subin, Tanaya Macheel

CrowdStrike gained 1.5% in premarket trading after BMO Capital Markets initiated coverage of the stock.

Analyst Keith Bachman named the stock an outperformer, saying CrowdStrike could compete within the endpoint security market and had significant growth opportunities. His price target implied an upside of 14.9% over where it closed Tuesday.

"We believe that CrowdStrike offers best-in-class endpoint security capabilities and an expanding platform that will help CrowdStrike compete against Microsoft and other vendors," Bachman said in a note to clients Wednesday. 

CNBC Pro subscribers can read more about the call here.

— Alex Harring

IBM shares dipped nearly 2% in the premarket after Morgan Stanley lowered its rating on the tech company to equal weight from overweight.

"Should our 2023 Industry Outlook prove correct, and early cycle dynamics emerge in mid 2023, we see risk to outperformance given the stock is trading near-record highs and IBM historically underperforms IT Hardware and its peers in an early cycle environment," analyst Erik Woodring said in a note to clients.

— Alex Harring

European markets were mixed Wednesday as uncertainty persisted on the economic outlook, a topic high on the agenda at the World Economic Forum in Davos this week.

The pan-European Stoxx 600 index was fractionally higher in early trade. Travel and leisure stocks added 1.1% while chemicals dropped 0.6%.

Meanwhile, the annual rate of inflation in the U.K. fell in December to 10.5% — slightly below analyst expectations. It marked the second month of declines, after the rate slipped from a 41-year high to 10.7% in November.

- Elliot Smith

Bank of Japan's governor Haruhiko Kuroda said in an afternoon press conference on Wednesday that there is no further need to expand its yield curve control range, according to a Reuters translation.

"We don't need to further expand the band around our yield target," Kuroda was quoted as saying.

"It's been not long since we decided on our measures in December. It will likely take some more time for the measures to start having an effect in fixing market function," he said.

The Bank of Japan held its interest rates at a dovish -0.1% rate and made no changes to its yield curve control band.

– Jihye Lee

Moderna shares jumped more than 5% in extended trading Tuesday after the pharmaceutical company said its vaccine for respiratory syncytial virus is effective at preventing the disease in older adults.

The company expects to file an application for approval with the Food and Drug Administration in the first half of this year.

— Sarah Min, Spencer Kimball

Shares of United Airlines rose more than 2% in Tuesday extended trading after the firm topped estimates in its latest earnings results, which showed that travel demand remained resilient in spite of higher fares.

United Airlines reported adjusted earnings per share of $2.46, compared to the $2.10 per share, according to consensus estimates from Refinitiv. It reported total revenue of $12.4 billion, instead of the forecasted $12.2 billion.

— Sarah Min, Leslie Josephs

It's more more likely that stock market conditions are closer to a "tactical high than a new uptrend," BTIG chief market technician Jonathan Krinsky wrote in a note to clients Tuesday.

One problem for optimists is that "history suggests that week three after a bad year is when things get more difficult, and we expect this year to follow that pattern," Krinsky said. "Risk/reward looks poor here after a two-week rally that was led by the most-shorted names," and which rose for six straight sessions and nine out of 12 days, the analyst wrote.

There are two other disquieting omens for the market:

1. The recent run-up in Caterpillar to an all-time high, which left the construction machinery maker "about 25% above its" 200-day moving average. "Over the last 30 years, it hasn't spent too much time in this range," BTIG said.
2. Signs that the slide in the dollar may be over in the face of "some downside exhaustion on a weekly timeframe," and a 50% chart retracement in the DXY dollar index measured from the low in 2021 to the high in 2022. A bounce higher in the dollar "would also be broadly negative," Krinsky wrote, noting that dollar strength in late September accompanied a bottom in the S&P 500.

— Scott Schnipper

U.S. stock futures inched lower on Tuesday night.

Futures tied to the Dow Jones Industrial Average fell by 38 points, or 0.11%. S&P 500 and Nasdaq 100 futures dipped 0.11% and 0.14%, respectively.

— Sarah Min