After weak economic data rekindled concerns about the outlook for growth and corporate earnings, US stocks ended the day just off session lows. Treasuries rose, while the dollar recovered as risk sentiment deteriorated.
The S&P 500 fell 1.6%, the most in a month, while the tech-heavy Nasdaq 100 snapped a seven-day rally after reversing more than 1% gains. Earlier, stocks rose as treasury yields fell across the curve on expectations that weak data would prompt the Fed to ease up on its tightening policy. Despite further signs that the economy was softening and inflation was cooling, two Fed officials called for more hikes.
According to reports released on Wednesday, producer price growth fell more than expected last month, and retail sales fell more than expected. Meanwhile, business equipment production fell, with a drop in factory output capping off the worst quarter for manufacturing since the pandemic began. Consumer confidence is dwindling, and business investment is declining, raising fears that the economy is on the verge of a recession.
Microsoft announced plans to cut 10,000 jobs in order to deal with an increasingly bleak outlook. Bank of America Corporation began instructing executives to halt hiring except for the most critical positions. The crypto firm genesis global capital is said to be preparing to file for bankruptcy.
Treasury yields rose across the curve in afternoon trading, with the 10-year yield falling nearly 18 basis points to 3.37%. Money markets increased their bets on policy easing, betting that the fed rate will peak just below 4.9%, up from the current range of 4.25% to 4.5%.
While markets are pricing in a reduction in the rate-hiking cycle, two closely watched Fed hawks have reiterated their calls for more increases. St. Louis Fed President James Bullard stated that policy is almost, but not quite in restrictive territory.
Loretta Mester, president of the Cleveland Fed, said in an interview with the Associated Press published Wednesday that the Fed needs to "keep going," but she didn't say how much of a rate increase she preferred when officials meet on January 31st-February 1st. Philadelphia Fed President Patrick Harker reiterated his belief that interest rates should be raised in quarter-point increments "in the future."
According to the latest Fed Beige Book survey, the rate of price increases has slowed in many districts, and price growth is expected to moderate further in the coming year.
The yen fell as much as 2.6% against the dollar after Japan's central bank doubled down on defending its stimulus, defying market speculation. The currency later fell 0.5%.