U.S. stocks traded lower on Thursday, erasing most of their gains from their biggest rally in three weeks after a round of upbeat economic data and a warning from hedge-fund titan David Tepper that he was “leaning short” against both stocks and bonds on expectations the Federal Reserve and other central banks will continue tightening into 2023.
Positive economic news can be a negative for stocks by underlining expectations that monetary policy makers will remain aggressive in their efforts to quash inflation.
What’s happening
- The Dow Jones Industrial Average
DJIA,
-1.51%
fell 472 points, or 1.4%, to 32,903. - The S&P 500
SPX,
-1.99%
shed 71 points, or 1.8%, to 3,807. - The Nasdaq Composite
COMP,
-2.84%
fell 272 points, or 2.5%, to 10,437.
A day earlier, all three major indexes recorded their best gain in three weeks as the Dow advanced 526.74 points.
What’s driving markets
Investors saw another raft of strong economic data Thursday morning, including a revised reading on third-quarter gross domestic product which showed the U.S. economy expanded more quickly than previously believed. Growth was revised up to 3.2%, up from 2.9% from the previous revision released last month.
See: Economy grew at 3.2% rate in third quarter thanks to strong consumer spending
The number of Americans who applied for unemployment benefits in the week before Christmas rose slightly to 216,000, but new filings remained low and signaled the labor market is still quite strong. Economists polled by The Wall Street Journal had forecast new claims would total 220,000 in the seven days ending Dec 17.
“Jobless claims ticking slightly up but coming in below expectations could be a sign that the Fed’s wish of a slowing labor market will have to wait until 2023. While weekly jobless claims aren’t the best indicator of the overall labor market, they have remained in a robust range these last two months suggesting the labor market remains strong and has withstood the Fed’s tightening, at least for the time being,” said Mike Loewengart, head of model portfolio construction at Morgan Stanley Global Investment Office, in emailed comments.
“While weekly jobless claims aren’t the best indicator of the overall labor market, they have remained in a robust range these last two months suggesting the labor market remains strong and has withstood the Fed’s tightening, at least for the time being,” he wrote. “It’s no surprise to see the market take a breather today after yesterday’s rally as investors parse through earnings data, and despite some beats this week, expectations that earnings will remain as resilient in 2023 may be overblown.”
Stocks were feeling pressure after Appaloosa Management’s Tepper shared a cautious outlook for markets based on the expectation that central bankers around the world will continue hiking interest rates.
“I would probably say I’m leaning short on the equity markets right now because the upside-downside doesn’t make sense to me when I have so many people, so many central banks, telling me what they are going to do, what they want to do, what they expect to do,” Tepper said in a CNBC interview.
Key Words: Billionaire investor David Tepper would ‘lean short’ on stock market because central banks are saying ‘what they’re going to do’
A day earlier, the Conference Board’s consumer confidence survey came in at an eight-month high, which helped stoke a rally in stocks initially spurred by strong earnings from Nike Inc. and FedEx Corp. released Tuesday evening. This optimistic outlook helped stocks clinch their best daily performance in three weeks.
Volumes are starting to dry up as the year winds down, making markets more susceptible to bigger moves. According to Dow Jones Market Data, Wednesday saw the least combined volume on major exchanges since Nov. 29.
Read: Is the stock market open on Monday after Christmas Day?
In other economic data news, the U.S. leading index fell a sharp 1% in November, suggesting that the U.S. economy is heading toward a downturn.
Many market strategists are positioned defensively as they expect stocks could tumble to fresh lows in the new year.
See: Wall Street’s stock-market forecasts for 2022 were off by the widest margin since 2008: Will next year be any different?
Katie Stockton, a technical strategist at Fairlead Strategies, warned clients in a Thursday note that they should brace for more downside ahead.
“We expect the major indices to remain firm next week, helped by oversold conditions, but would brace for more downside in January given the recent downturn,” Stockton said.
Others said the latest data and comments from Tepper have simply refocused investors on the fact that the Fed, European Central Bank and now the Bank of Japan are preparing to continue tightening monetary policy.
“Yesterday was the short covering rally, but the bottom line is the trend is still short and we’re still fighting the Fed,” said Eric Diton, president and managing director of the Wealth Alliance.
Single-stock movers
- AMC Entertainment Holdings
AMC,
-14.91%
was down sharply after the movie theater operator announced a $110 million equity capital raise. - Tesla Inc.
TSLA,
-8.18%
shares continued to tumble as the company has been one of the worst performers on the S&P 500 this year. - Shares of Verizon Communications Inc.
VZ,
-0.53%
were down again on Thursday as the company heads for its worst year on record. - Shares of CarMax Inc.
KMX,
-6.60%
tumbled after the used vehicle seller reported fiscal third-quarter profit and sales that dropped well below expectations. - Chipmakers and suppliers of equipment and materials, including Nvidia Corp.
NVDA,
-8.60% ,
Advanced Micro Devices
AMD,
-7.17%
and Applied Materials Inc.
AMAT,
-8.54% ,
were lower on Thursday.