Stocks fell Thursday as investors grew increasingly concerned the Federal Reserve will keep raising rates despite signs of slowing inflation.
The Dow Jones Industrial Average lost 252.40 points, or 0.76%, to 33,044.56, posting its third down day in a row and giving up its gains from the new year's rally. The 30-stock index is now down 0.31% in 2023.
Meanwhile, the S&P 500 fell 0.76% to 3,898.85, and the Nasdaq Composite shed 0.96% to end the session at 10,852.27. Both indexes are still positive for the year.
All of the major averages are on pace for their first negative week in three. The Dow is down 3.67% and on pace for its worst weekly performance since September. The S&P and Nasdaq have each lost more than 2% on a weekly basis.
"After the market practically grazed our near-term SPX fair value estimate intraday [4,014 both Tuesday and Wednesday] stocks slid and acted like they needed a breather," said Christopher Harvey, Wells Fargo Securities head of equity strategy. "The factors driving the sharp YTD rally (short covering, risk bid and lower yields) appear to be hitting their near-term bounds. This will likely will cause the market to trade sideways-to-down over the short term."
Stocks extended their slide on Thursday after initial filings for unemployment insurance fell to their lowest level since September, the Labor Department reported, signaling to investors that the labor market is resilient amid a slowing economy.
"Despite all the big-tech post-pandemic layoffs, the jobs market remains hot," said Ed Moya, senior market analyst with currency data and trading firm Oanda. "The labor market needs to break to allow the Fed to comfortably keep rates on hold."
Claims totaled a seasonally adjusted 190,000 for the week ending Jan. 14, a decline of 15,000 from the previous period. Economists surveyed by Dow Jones had been looking for 215,000.
Investors have been parsing other recent economic data and Fed remarks for clues on how high rates will go. But, while recent numbers point to easing inflation, JPMorgan Chase CEO Jamie Dimon thinks rates will top 5%.
"I think there's a lot of underlying inflation, which won't go away so quick," Dimon told CNBC's "Squawk Box" from the World Economic Forum in Davos, Switzerland.
Elsewhere, investors are watching key quarterly reports to see if there is an earnings recession brewing. Netflix will report earnings after the bell.
Correction: Initial filings for unemployment insurance fell to their lowest level since September. An earlier version of this story misstated the month.
Consumer staple stocks are 'vulnerable,' Strategas' Chris Verrone writes
Food and beverage stocks "are weakening and should either be reduced or considered short candidates," Strategas technical analyst Chris Verrone wrote in a note Thursday.
Stocks including Costco, Altria, Keurig Dr Pepper, Hershey, Constellation Brands, Sysco, Hormel and McCormick "are deteriorating," Verrone said, adding he'd be less concerned if the group was underperforming in a rising market, by rising less than other sectors.
Instead, what's happening now is that staples are underperforming "and falling in price," suggesting that recent assertions of improved market breadth "and liquidity are not as robust as advertised."
Finally, Verrone noted that since the S&P 500 bottomed back in mid-October, flows of funds into sector ETFs have been dominated first by health care ($3 billion), and second by staples ($2.35 billion).
— Scott Schnipper
Stocks end the day lower Thursday
Stocks closed lower on Thursday.
The Dow Jones Industrial Average lost 252.40 points, or 0.6%, to 33,227.49. The S&P 500 fell 0.76% to 3,898.87. The Nasdaq Composite shed 0.96% to end at 10,932.52.
— Tanaya Macheel
No need to panic as the U.S. hits the debt ceiling, says Commonwealth’s McMillan
The U.S. hit its debt limit on Thursday, which weighed on some investors who worried about what a potential default could mean for economic growth and the Treasury market. Brad McMillan, chief investment officer at Commonwealth Financial Network, said although this is a big deal, it's happened before and will happen again.
"While the ending could be really bad, every previous time we ended up resolving the problem," he said, adding there are ways the problem could be resolved before June.
"If Congress cannot or will not come to an agreement… there are indeed options short of default," he said. "Those options will happen before we default. As we saw in the financial crisis, the government is willing to do a lot of things previously unimaginable before letting the world blow up, and I am quite certain that would be the case here as well."
— Tanaya Macheel
Bullish sentiment in latest AAII survey rallied back to 9-week high
Bullish sentiment in the latest weekly survey by the American Association of Individual Investors rose to its highest in nine weeks (31%, up from 24% last week and just below the past year's high of 33.5% reached in mid-November).
Bearish sentiment dropped to its lowest point in 11 weeks (33.1%, down 39.9% last week and far below the past year's high of 60.9% reached in mid-September.)
Neutral views were unchanged in the latest week, at 36%. Sentiment surveys are contrarian indicators with AAII saying "above-average market returns have often followed unusually low levels of optimism, while below-average market returns have often followed unusually high levels of optimism."
Bulls in the latest Investors Intelligence survey of financial newsletter editors climbed to 46.5% this week from 41.4% the week before; bears fell to 29.6% from 32.9%; and those expecting a correction dropped to 23.9% from 25.7%. The so-called bull-bear spread widened to 16.9 points from 8.5 — the ninth straight week II bulls outnumbered bears.
"Even after the large increase, the positive differences is not yet a major concern," II said.
— Scott Schnipper
Market participants look to Netflix earnings after the bell
Market participants are watching Netflix earnings after the bell Thursday.
Analysts polled by Refinitiv expect per-share earnings of 45 cents, which would mark a 66.3% drop from the same quarter a year ago. But they are expecting a modest gain of 1.8% on revenue compared with the same period a year ago, coming out to about $7.85 billion for the quarter.
The report comes as the landscape grows increasingly fraught for streamers, with competition growing and advertising revenue challenged. In recent months, Netflix has cracked down on password sharing and implemented an ad-supported, cheaper subscription tier.
Shannon Saccocia, the CIO at SVB Private, said the streamer needs to keep making content with a wide appeal without guidance on subscriber numbers. She pointed to the show "Wednesday" as an example of what Netflix needs to do more of: content that has a wide appeal and can drive subscriptions, particularly in international markets.
"It's going to be increasingly important that Netflix can not only talk about what's going to happen with their ad supported tier and password sharing, but really that content spend for me is critical," she said on CNBC's "Halftime Report."
Others have tempered expectations heading into the report given the increasingly crowded market.
"I still think that Netflix is the one to beat, but also I think that you have to have good expectations," said Bryn Talkington, managing partner of Requisite Capital Management. "I don't think this company is going to even remotely have the performance its had over the past 10 years just because there's too much competition."
"We can only spend so much money on 20 different streaming services," she added.
— Alex Harring
Names making the biggest midday moves
Here are some companies making the biggest midday moves:
- Norwegian Cruise Line —The cruise line stock sunk more than 5% after the Norwegian said it will report a net loss for the fourth quarter and full year of 2022, as well as the first quarter of 2023.
- Vornado Realty Trust — Shares of the real estate investment trust lost 3.25% after cutting its quarterly dividend to 37.5 cents per share from 53 cents. Vornado Realty cited the economy and capital markets, as well as Vornado's reduced projected 2023 taxable income, primarily due to higher interest exposure.
- Northern Trust — The stock dropped nearly 9% after Northern Trust reported fourth-quarter net income per diluted common share of 71 cents, compared to $1.91 in the fourth quarter of 2021. Revenue from its trust and investment services came in at $1.04 billion, less than the $1.05 billion expected by StreetAccount.
For more stocks making moves in midday trading, click here.
— Michelle Fox
Brainard sees rates remaining elevated despite cooling inflation
Federal Reserve Governor Lael Brainard said Thursday she expects interest rates to remain high despite recent signs that inflation is weakening.
In a speech delivered at the Chicago Booth School of Business, the central bank official vowed to "stay the course" until inflation shows more signs that it's moving closer to the Fed's 2% goal.
""Even with the recent moderation, inflation remains high, and policy will need to be sufficiently restrictive for some time to make sure inflation returns to 2% on a sustained basis," she said.
JPMorgan's Kolanovic says a recession is not priced into stocks
JPMorgan's Marko Kolanovic, who gained a following after calling the stock market rebound in 2020, said a recession hasn't been priced into equities just yet, meaning there could be more downside from here.
"We do not agree with the argument that because a recession is consensus (although more and more believe in soft landing), the market and economic outcome have to be better," Kolanovic, the bank's global market strategist, said in a Thursday note.
"US industrials, and non-tech large caps (Dow Jones) as well as European stocks are basically flat over the past year, and close to previous highs. After a ~20% rally since last fall, this would strongly suggest that a recession is currently not priced in," Kolanovic added. "Keep in mind that over that year we had unprecedented global monetary tightening, energy crisis, inflation crisis, geopolitical crises, decline in earnings and significant increase of recession probability."
— Fred Imbert, Michael Bloom
Yardeni says markets will force a debt deal
Investor Ed Yardeni expects that if the warring sides in Washington can't reach an agreement on the debt ceiling, financial markets will get them there.
As the standoff continues over raising the national $31.4 trillion limit, Yardeni said markets eventually will force Congress' hand and he expects a "last-minute" deal to get done.
"If there is no last-minute deal, the stock and bond market will tank for about a week, then there will be a deal," the head of Yardeni Research said Thursday morning on CNBC's "Squawk on the Street." "This too shall pass."
Fed's Collins says future rate hikes can be 'more measured'
Boston Federal Reserve President Susan Collins said Thursday that she thinks the central bank can enact smaller interest rate hikes after a series of aggressive moves last year.
"More measured rate adjustments in the current phase will better enable us to address the competing risks monetary policy now faces – the risk that our actions may be insufficient to restore price stability, versus the risk that our actions may cause unnecessary losses in real activity and employment," she said in prepared remarks.
Collins did not specify where she thinks policy should head next. But the Fed at its December meeting approved a 0.5 percentage point increase after four straight 0.75-point moves.
While most economists expect at least a mild recession this year, Collins said he is "reasonably optimistic that there is a pathway to reducing inflation without a significant economic downturn."
Natural gas falls to 19-month low, on pace for 5th straight weekly decline
February natural gas contracts touched $3.194 per thousand cubic feet early Thursday, the lowest since June 22, 2021.
Natgas is down about 5.5% week-to-date and on pace for its fifth straight weekly decline and seventh down week in the past eight.
Going in to Thursday's trading, United States Natural Gas Fund (UNG) was down about 16% so far in 2023.
— Scott Schnipper, Gina Francolla
Stocks open lower Thursday
Stocks fell at the open on Thursday, extending losses from the previous day.
The Dow Jones Industrial Average fell 125.61 points, or 0.37%. The S&P 500 slid 0.43%. The Nasdaq Composite lost 0.61%.
— Tanaya Macheel
Bank of America double downgrades Charles Schwab
Bank of America double downgraded shares of Charles Schwab, saying it's time to move away from interest rate sensitive brokers.
"This change is driven by our view that (1) client cash sorting will continue at an elevated pace in 1H23 (pressuring liquidity, interest earning assets & bank deposit account [BDA] levels) and (2) the Fed will end its interest rate hiking cycle by this summer, removing a powerful nearterm profit driver (while securities portfolio reinvestment opportunity remains)," analyst Craig Siegenthaler wrote Thursday.
— Sarah Min
Morgan Stanley CEO optimistic, says inflation has peaked
Morgan Stanley CEO James Gorman is optimistic this year for the market.
For one, inflation is better, he said in an interview with CNBC's "Squawk Box" Thursday from the World Economic Forum in Davos, Switzerland.
"Clearly inflation peaked. That is no longer a question, it's a fact. The question is can they get to 2% and how hard will they try to get to 2% versus stabilizing around 3, 4[%]," Gorman said.
He can see the Federal Reserve hiking rates by 25 basis points during its February meeting, another 25 basis points at the next meeting and then pausing. "That's not implausible," he said.
Eventually, there could be roughly 4% unemployment, 4% inflation and 4% interest rates, Gorman said.
"If we get in that kind of zone, we can deal with it. That would be an appropriate time to pause. Let the rate increases work their way through the system," he said.
At the same time, the recent meeting between the U.S. and China, a sign of an economic pivot by China, is also a "big deal," Gorman said.
Ultimately, Gorman said he wouldn't be surprised if the S&P 500 ended the year at 3,900.
— Michelle Fox
Fewer Americans submit jobless claims than expected
There were about 190,000 initial claims for unemployment in the U.S. for the week ending on Jan. 14, which is smaller than expected and underscores the continued resiliency of the labor market.
That's below the 215,000 initial claims expected for the week by analysts polled by Dow Jones. It also marks a decrease from the prior week's 205,000 claims.
Market participants have watched labor data for signs of the job market cooling. Labor is an area of the economy that has stayed robust even as other areas showed contraction following the Federal Reserve's series of interest rate hikes.
— Alex Harring
Stocks making the biggest premarket moves
Check out the stocks making the biggest moves before the bell:
- Roblox — Roblox shares fell 6.7% after Morgan Stanley downgraded the gaming company to underweight from equal weight and said the upside is limited following the stock's recent outperformance.
- Discover — The online bank lost 7.3% despite beating expectations for per-share earnings and revenue. Discover boosted its provision for credit losses compared to the prior year, potentially signaling that it sees a weaker economy ahead.
- CureVac — The biopharmaceutical company jumped 8.2% following an upgrade to buy from neutral by UBS, which said Phase 1 results for a treatment that uses mRNA for influenza saw a "major infection point."
- Alcoa — The aluminum maker slid 6.4% after reporting net losses for the most recent quarter, saying high costs for energy and raw materials, paired with low aluminum pricing, dragged on earnings.
See the full list here.
— Alex Harring
Procter & Gamble falls after earnings
Procter & Gamble shares fell more than 1% in the premarket after the consumer goods giant posted mixed quarterly results.
The company reported revenue of $20.77 billion, slightly above a Refinitiv forecast of $20.73 billion. Procter's earnings per share matched analyst expectations, coming in at $1.59. Additionally, the Dow component reiterated its full year earnings growth guidance, but said it sees earnings per share coming in at the low end of their expected range.
— Fred Imbert
Jamie Dimon's inflation warning
Comments from JPMorgan Chase CEO Jamie Dimon were not helping market sentiment Thursday morning.
"I actually think rates are probably going to go higher than 5%.... because I think there's a lot of underlying inflation, which won't go away so quick," Dimon said on CNBC's "Squawk Box" from the World Economic Forum in Davos, Switzerland.
The Federal Reserve has forecast it will raise rates to 5.1% before it stops hiking, but Dimon believes that may not be enough. Stocks have rallied to start 2023 on the hope that inflation is peaking. December's consumer price reading showed a 0.1% decline from the prior month.
-John Melloy, Yun Li
Roblox falls after Morgan Stanley downgrade
"Heading into '23, we had maintained a balanced view on RBLX as we believed that strong holiday seasonality and easy comps through mid '23 would lead to a series of monthly metric releases showing accelerating bookings growth," Morgan Stanley said.
— Sarah Min
European markets fall as investor mood sours
European markets retreated on Thursday, tracking weaker global sentiment as investors gauge the economic outlook, a topic high on the agenda at the World Economic Forum in Davos this week.
The pan-European Stoxx 600 was down 0.6% in early trade, with oil and gas stocks shedding 1.9% to lead losses as almost all sectors and major bourses slid into the red.
- Elliot Smith
CNBC Pro: 2023 is set to be tough — but this 'exceptional' stock is rock solid, fund manager says
Many investors are bracing themselves for a tough year, with at least a mild recession looking likely.
Because of the "darkening" economic environment, fund manager Trent Masters of Alphinity Investment Management told CNBC Pro Talks that he picks stocks with one key quality: earnings resilience.
He names one "rock solid" stock that meets that criterion.
— Weizhen Tan
CNBC Pro: Morgan Stanley’s Slimmon says stocks will 'surprise' Wall Street in 2023 — and names two he likes
Investment veteran Andrew Slimmon said he believes stocks are going to do "far better" than most expect this year.
"I'm not so sure about the second half of this year but I think the surprise is going to be that the stock market is going to do better earlier this year than what was almost universally predicted by many of the strategists on the sell side," Slimmon, senior portfolio manager at Morgan Stanley Investment Management, told CNBC's "Squawk Box Asia" on Friday.
He also named two of his favorite stocks.
Pro subscribers can read more here.
— Zavier Ong
Alcoa, Discovery Financial among stocks making moves in after hours
Earnings results were the biggest catalyst moving some stocks in after hours trading Wednesday.
Discover Financial Services — Shares of Discover Financial Services slid 6.2% after the credit card company posted quarterly earnings that beat expectations, but showed that the bank also boosted its provision for credit losses compared to the prior year, potentially signaling that it sees a weaker economy ahead.
Alcoa — Shares of Alcoa fell 3.6% after the company reported earnings that showed a net loss of $374 million for the quarter, or $2.12 per share. The company also said that it faced challenging market conditions in the period, including high costs for energy and raw materials alongside low pricing for aluminum.
Economic data signals Fed has made a policy error, Infrastructure Capital CEO says
The latest economic data shows that the Federal Reserve is making a policy error by tightening monetary policy too much as prices and the economy slow, according to Jay Hatfield, CEO at Infrastructure Capital Advisors.
"The Fed's policy errors stem from its myopic focus on the labor market as the key driver of inflation (the Phillips Curve theory) vs. focusing on the historic factors that have actually driven inflation which are excessive monetary growth causing housing bubbles and energy and commodity shocks," he said in a Wednesday note.
Still, he sees stocks making a recovery by year-end.
"We continue to forecast that 10-year treasuries will hit 3% by year end and the US stock market will rally as the US economy is very resilient with post Pandemic tailwinds offsetting Fed policy errors," he said. "We continue to forecast that the S&P will hit 4,500 by year end as the Fed is forced to pause its policy tightening as it finally recognizes that inflation is declining rapidly."
Stock futures are flat after Wednesday's down session
Stock futures were flat Wednesday night as traders looked ahead to new economic data, earnings reports and Federal Reserve speeches after a rough day for stocks.
Futures tied to the Dow Jones Industrial Average slid 22 points, or 0.06%. S&P 500 futures and Nasdaq 100 futures ticked down 0.05% and 0.04% respectively.
-- Carmen Reinicke