Wall Street slumps as its weak start to 2024 carries into another day
Stocks fell again Wednesday as Wall Street’s slow start to the year stretched into a second day.
The Standard & Poor’s 500 index lost 38.02 points, or 0.8%, to 4,704.81, though it remains within 2% of its record set exactly two years ago. The Dow Jones industrial average dropped 284.85 points, or 0.8%, from its own record to 37,430.19. The Nasdaq composite led the market lower with a drop of 173.73 points, or 1.2%, to 14,592.21.
Some of last year’s biggest winners again gave up some of their gains to weigh on the market. Tesla fell 4% after more than doubling last year, for example. It and the other six “Magnificent 7” Big Tech stocks responsible for the majority of Wall Street’s returns last year have regressed somewhat after their tremendous runs.
The question hanging over the market is whether all the enthusiasm that helped stocks broadly rally for nine straight weeks into the end of last year was warranted. It was built on expectations that inflation has cooled enough for the Federal Reserve to not only halt its hikes to interest rates but also to cut them several times this year. Hopes are also high that the economy can meanwhile escape a recession, even after the Fed hiked its main interest rate to the highest level since 2001.
A couple of reports released Wednesday morning indicated that the overall economy may indeed be slowing from its strong growth last summer, which the Fed hopes will keep a lid on inflation. A big danger is if it slows too much and begins shrinking.
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One report showed U.S. employers were advertising nearly 8.8 million job openings at the end of November, down slightly from the month before and the lowest number since early 2021. The report also showed slightly fewer workers quit their jobs during November.
The Fed is looking for exactly such a cool-down, which it hopes will limit upward pressure on inflation without necessitating widespread layoffs across the economy.
“These data will be welcome news for policymakers,” said Rubeela Farooqi, chief U.S. economist at High Frequency Economics.
A second report from the Institute for Supply Management showed the U.S. manufacturing industry is improving by a touch more than economists expected, but it’s still contracting. Manufacturing has been one of the hardest-hit areas of the economy recently, while the job market and spending by U.S. households have remained resilient.
Treasury yields slumped immediately after the reports and then yo-yoed through the day. The yield on the 10-year Treasury eventually slipped to 3.91% from 3.94% late Tuesday. It’s been generally falling since topping 5% in October, when it was putting strong downward pressure on the stock market.
The combined net worth of the 500 richest people surged by $1.5 trillion in 2023, fully rebounding from the $1.4 trillion lost the year prior, and no one did better than Elon Musk.
In the afternoon, yields swung again after the Fed released the minutes from its latest policy meeting. It was at that meeting in December that policymakers hinted that their dramatic campaign to hike interest rates to get inflation under control may be over.
The minutes from the meeting revealed that “almost all participants” indicated a drop in rates this year probably would be appropriate. But they also said their forecasts were hampered by an “unusually elevated degree of uncertainty.” A reacceleration of inflation, which is still a possibility, could push them to actually raise rates further.
Fed officials also noted in their meeting how stock prices have rallied recently and Treasury yields have eased. Such conditions can rev up the economy and add upward pressure on inflation.
Although the Fed doesn’t like that, “the worst they’ll do is push out the date when they first cut,” said Brian Jacobsen, chief economist at Annex Wealth Management.
Traders are largely betting the first cut to rates could happen in March, and they’re putting a high probability on the Fed cutting its main interest rate by least 1.50 percentage points through the year, according to data from CME Group. The federal funds rate is currently sitting within a range of 5.25% to 5.50%.
Critics say that’s probably too bold a prediction. “The only way the Fed will cut more than four times in 2024 is if the economy is skidding out of control” into a recession, Jacobsen said.
Even if the Fed pulls off a perfect landing to shimmy away from high inflation without causing an economic downturn, some critics also say the stock market has simply run too far, too fast in recent months and is due for at least a pause in its run.
In stock markets abroad, indexes fell across much of Europe and Asia. Losses were particularly sharp in France, where the CAC 40 fell 1.6%, and in South Korea, where the Kospi sank 2.3%. Stocks in Shanghai were an outlier, rising 0.2%.
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