Wall Street ends lower for third straight day as recession worries rise

All the indexes took another big dive today, the Dow down some 350 points by 1 pm to then slowly recover to a 281 point loss by close.  It was the third down day in a row as the skeptics were firmly in charge with sentiment growing stronger that we are headed for recession triggered by today’s comments from various Fed officials that more tightening was on the way for 2023.  This is the third day of panic selling despite the fact that the Fed has done nothing that was not expected.  The market had hoped for just two more small hikes early next year and that’s what the Fed said would likely happen. 

This did not sway the naysayers as summarized by today’s expert, “the market is starting to understand that bad news is bad news” and rejected the “optimism that the Fed could navigate and pilot a successful soft landing.”  This is an irrational statement.  The market has been loudly reacting to all the bad news and fears of recession for months.  Optimism has also waned that there will be the traditional Santa Claus rally this year.  The good news: today was the stock options expiration date so the numbers are exaggerated and cannot be trusted as is also reflected in the huge spike in volume at 17.3 billion. A little bonus today is this very informative graph showing all the other major countries that have done rate hikes this year? Can all these powerhouse economies be wrong?

Fri  December 16, 2022  4:21 PM

Wall Street ends lower for third straight day as recession worries rise

By Chuck Mikolajczak

DJ: 33,202.22  -764.13        NAS: 10,810.53  -360.36        S&P: 3,895.75  -99.57      12/15

DJ: 32,920.46  -281.76        NAS: 10,705.41  -105.11        S&P: 3,852.36  -43.39      12/16

NEW YORK, Dec 16 (Reuters) - U.S. stocks dropped for a third straight session and suffered a second straight week of losses on Friday as fears continued to mount that the Federal Reserve's campaign to arrest inflation would tilt the economy into a recession.  Equities have been staggered since the U.S. central bank's decision to raise interest rates by 50 basis points (bps), as expected. But comments from Fed Chair Jerome Powell signaled more policy tightening, and the central bank projected that interest rates would top the 5% mark in 2023, a level not seen since 2007.

Further comments from other Fed officials fueled the concern. New York Fed President John Williams said on Friday it remains possible the U.S. central bank will raise rates more than it expects next year. The policymaker added that he does not anticipate a recession due to the Fed's aggressive tightening.  In addition, San Francisco Federal Reserve Bank President Mary Daly said it is "reasonable" to believe that once the Fed's policy rates reached their peak, they could stay there into 2024.

"It feels as if finally the market is starting to understand that bad news is bad news, and that is what is starting to occur. Since the October bottoms, the market has continued to price in what I would consider a substantial amount of optimism at the fact the Fed could navigate and pilot a successful soft landing," said Dave Wagner, equity analyst and portfolio manager for Aptus Capital Advisors in Cincinnati.  "Finally, the market is taking into consideration that bad news should mean bad things for the market."

The Dow Jones Industrial Average (.DJI) fell 281.76 points, or 0.85%, to 32,920.46; the S&P 500 (.SPX) lost 43.39 points, or 1.11%, to 3,852.36; and the Nasdaq Composite (.IXIC) dropped 105.11 points, or 0.97%, to 10,705.41.  For the week, the Dow lost 1.66%, the S&P fell 2.09% and the Nasdaq declined 2.72%.

Money market bets show at least two 25 bps rate hikes next year and a terminal rate of about 4.8% by midyear, before falling to around 4.4% by the end of 2023.  On the economic front, a report showed U.S. business activity contracted further in December as new orders slumped to their lowest level in just over 2-1/2 years, although easing demand helped cool inflation.  The tech-heavy Nasdaq on Thursday closed below its 50-day moving average, a key technical level seen as sign of momentum. On Friday, the S&P also closed below its 50-day moving average.

The prospects of a "Santa Claus rally", or year-end uptick, in markets this year have dimmed, as the majority of global central banks have adopted tightening policies. The Bank of England and the European Central Bank were the most recent to indicate an extended rate-hike cycle on Thursday.

Reuters Graphics Reuters Graphics

Markets pared losses in the last hour of trading, however, possibly due in part to the simultaneous expiration of stock options, stock index futures and index options contracts, known as triple witching, which can exacerbate market volatility.  Each of the 11 major S&P 500 sector indexes were in the red, led lower by a drop of more than 2.96% in real estate stocks (.SPLRCR).

Meta Platforms Inc (META.O) advanced 2.82% after J.P. Morgan upgraded the stock to "overweight" from "neutral," while Adobe Inc (ADBE.O) gained 2.99% after the Photoshop maker forecast first-quarter profit above expectations.  Exact Sciences Corp (EXAS.O) surged 16.39% after rival Guardant Health Inc's (GH.O) cancer test missed expectations, while General Motors Co (GM.N) lost 3.91% after its robotaxi unit Cruise faced a safety probe by U.S. auto safety regulators.

Volume on U.S. exchanges was 17.28 billion shares, compared with the x.xx billion average for the full session over the last 20 trading days.

Declining issues outnumbered advancing ones on the NYSE by a 2.47-to-1 ratio; on Nasdaq, a 1.66-to-1 ratio favored decliners.  The S&P 500 posted one new 52-week high and 18 new lows; the Nasdaq Composite recorded 79 new highs and 392 new lows.