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Wall St drops more than 1% with jobs data feeding fears of more Fed tightening

Published 01/05/2023, 06:39 AM
Updated 01/05/2023, 07:06 PM
© Reuters. A trader works on the trading floor at the New York Stock Exchange (NYSE) in New York City, U.S., December 14, 2022. REUTERS/Andrew Kelly
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By Sinéad Carew and Amruta Khandekar

(Reuters) - Wall Street's main indexes lost more than 1% on Thursday, with Nasdaq leading the declines, as evidence of a tight labor market eroded hopes that the Federal Reserve could pause its rating hiking cycle anytime soon as it keeps focused on inflation.

Thursday's ADP National Employment report showed a higher-than-expected rise in private employment in December. Another report showed weekly jobless claims fell last week.

On Wednesday, another data set showed a moderate fall in U.S. job openings. While a strong labor market would usually be welcomed as a sign of economic strength, investors currently see it as a reason for the Fed to keep interest rates high.

"It's very clear that good news on the labor market means bad news for the stock market. Data is showing that the labor market is very resilient," said Anthony Saglimbene, chief market strategist at Ameriprise in Tory Michigan.

"As long as the labor market is resilient, the Federal Reserve has to continue to tighten financial conditions to bring inflation down," said that strategist who expects investors to be keenly focused on wage inflation in Friday's jobs report.

The Dow Jones Industrial Average fell 339.69 points, or 1.02%, to 32,930.08, the S&P 500 lost 44.87 points, or 1.16%, to 3,808.1 and the Nasdaq Composite dropped 153.52 points, or 1.47%, to 10,305.24.

The indexes lost steam late in the day, ending close to their session lows. They had pared losses in the early afternoon when St. Louis Federal Reserve leader James Bullard said 2023 could finally bring some welcome relief on the inflation front.

While Saglimbene noted that Bullard's comments were not surprising, his suggestion that rate hikes were starting to show some signs of dampening inflation, provided some reassurance.

Among the S&P's 11 major sectors, real estate - which was the biggest percentage gainer on Wednesday - lead Thursday's sector losses with a 2.9% drop, with utilities came next, falling 2.2%.

The sole gainer was energy, which closed up 1.99% after crude oil futures settled higher.

On Wednesday, Wall Street's main indexes had erased some of their gains after minutes from the Fed's December meeting showed officials were laser-focused on fighting inflation even as they agreed to slow the hiking pace to limit economic risks.

Earlier Thursday both Kansas City Fed leader Esther George and Atlanta President Raphael Bostic stressed that the central bank's priority was to curb inflation through policy tightening.

Traders see rates peaking at slightly above 5% in June.

The more comprehensive non farm payrolls report due on Friday, will be looked to for further clues on labor demand and the rate hike trajectory.

Among individual stocks, Tesla (NASDAQ:TSLA) Inc ended down 2.9% after December sales of its China-made electric vehicles fell to a five-month low, while Amazon.com Inc (NASDAQ:AMZN) finished down 2.4% after it announced increased layoff plans.

Walgreens Boots Alliance (NASDAQ:WBA) Inc finished down 6% at $35.19 after the drugstore chain posted a quarterly loss on an opioid litigation charge.

Shares in Bed Bath & Beyond Inc (NASDAQ:BBBY) plunged 29.9% to $1.69 after the home goods retailer said it was exploring options, including bankruptcy.

Declining issues outnumbered advancing ones on the NYSE by a 1.58-to-1 ratio; on Nasdaq, a 1.44-to-1 ratio favored decliners.

© Reuters. A trader works on the trading floor at the New York Stock Exchange (NYSE) in New York City, U.S., December 14, 2022. REUTERS/Andrew Kelly

The S&P 500 posted 8 new 52-week highs and 7 new lows; the Nasdaq Composite recorded 68 new highs and 66 new lows.

On U.S. exchanges was 10.21 billion shares changed hands compared with the 10.79 billion moving average for the last 20 trading days.

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