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.