Dow drops more than 600 points after strong economic data, bearish comments from David Tepper

US stocks were sharply lower in Thursday afternoon trade, more than erasing their gains from their biggest rally in three weeks after a string 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 that the Federal Reserve and other central banks will continue to tighten in 2023.

Positive economic news can be negative for stocks by underscoring expectations that monetary policy makers will remain aggressive in their efforts to suppress inflation.

What is going on
  • The Dow Jones Industrial Average DJIA,
    -1.23%
    it fell 669 points, or 2%, to 32,708.

  • The S&P 500 SPX index,
    -1.65%
    he dropped 97 points, or 2.5%, to 3,780.

  • The Nasdaq Composite COMP,
    -8.19%
    it fell 347 points, or 3.3%, to 10,362.

All three major indexes posted their best gains in three weeks on Wednesday as the Dow advanced 526.74 points.

What drives the markets

Investors saw another batch of strong economic data Thursday morning, including a revised reading on third-quarter gross domestic product that showed the US economy was expanding faster than previously thought. Growth was revised to 3.2%, up from 2.9% in the previous update released last month.

The number of Americans who applied for unemployment benefits in the week before Christmas rose slightly to 216,000, but new applications remained low and signaled that the job market is still quite strong. Economists polled by the Wall Street Journal had forecast that new claims would hit 220,000 in the seven days ending Dec. 17.

“Claims are up slightly but lower than expected could be a sign that the Fed’s desire for a slowing labor market will have to wait until 2023,” said Mike Loewengart, head of model portfolio construction at Morgan Stanley Global Investment Office, in an email Comments.

“It’s not surprising to see the market taking a breather today after yesterday’s rally as investors scan earnings data, and despite some beating this week, expectations that earnings will remain resilient in 2023 may be overblown,” he wrote.

Stocks came under pressure after Appaloosa Management’s Tepper shared a cautious outlook for markets based on an expectation that central bankers around the world will continue to raise interest rates.

“I’d probably say right now I’m leaning into equity markets because the upside doesn’t make sense to me when I have so many people, so many central banks, telling me what they’re going to do, what they want to do, what they expect to do,” Tepper said in an interview with CNBC.

Keyword: Billionaire investor David Tepper ‘would move’ to stock market as central banks are saying ‘what they will do’

The information technology sector of the S&P 500 is leading losses with semiconductor stocks such as Micron Technology Inc.
mu,
-2.76%
and Lam Research Corporation
LRCX,
-8.26%
down by more than 7% and 10% respectively.

Micron Technology said its revenue fell nearly in half to $4.09 billion on a decline in the prices of its products, while it posted a loss of $195 million for the quarter, according to its report. on profits. The memory chip specialist also revealed it plans to cut around 10% of its staff in 2023.

“I think that report really put investors on the heels that the cyclical cycle that ignited retail is suffering badly. And I think that was just another sign of the very fragile nature of the state of the economy right now,” said Mark Luschini, chief investment strategist at Janney Montgomery Scott.

See: Wall Street’s stock market forecast for 2022 was off the widest margin since 2008: Will next year be different?

In other economic data news, the US main index fell a sharp 1% in November, suggesting the US economy is heading for a recession.

Many market strategists are defensively positioned as they expect stocks to fall to new lows in the new year.

Katie Stockton, technical strategist at Fairlead Strategies, warned clients in a note on Thursday that they should prepare for more downside ahead.

“We expect the major indices to hold flat next week, helped by oversold conditions, but would be preparing for further declines in January given the recent dip,” Stockton said.

Others said Tepper’s latest data and comments simply refocused investors 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 that the trend is still short and we’re still fighting the Fed,” said Eric Diton, Wealth Alliance chairman and chief executive officer.

Laws: Is the stock market open on the Monday after Christmas Day?

Single Title Movements
  • Shares of AMC Entertainment Holdings
    AMC,
    -11.32%
    they fell 16.1% after the theater operator announced a $110 million capital raise.

  • Tesla Inc.
    ATS,
    -8.21%
    shares continued to tumble as the company has been one of the worst performers in the S&P 500 this year. Tesla shares are down 9.3%.

  • Shares of Verizon Communication Inc.
    VZ,
    +0.74%
    they fell 1% on Thursday as the company heads into its worst year on record.

  • Shares of CarMax Inc.
    KMX,
    -3.99%
    it tumbled 6.7% after the used-vehicle seller reported fiscal third-quarter profit and sales that fell well below expectations.

  • Chip manufacturers and suppliers of equipment and materials, including nvidia corp.
    NVDA,
    -6.74%,
    Advanced Micro Devices
    amd,
    -5.55%
    and Applied Materials Inc.
    AMAT,
    -7.62%,
    they were lower on Thursday.

— Steve Goldstein contributed to the report

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