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Stocks Notch Third Day of Losses on Growth Jitters: Markets Wrap

(Bloomberg) -- US stocks fell for a third day as risks from rising interest rates to economic growth and earnings kept a grip on sentiment.

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Still, bulls can take some solace in the selloff in equities showing signs of easing, with the S&P 500 ending down 0.8%, less than the 1.6% slide a day earlier. Despite some selling into the close, dip buyers emerged in some big tech names while traders digested the latest Fedspeak.

Federal Reserve Governor Lael Brainard, considered a dove, said Thursday rates will need to stay elevated for a period to further cool inflation. She didn’t state a preference for whether the Fed should downshift hikes at its next meeting or what peak rate she envisioned this year.

Her comments came a day after Fed hawks called for boosting rates, with St. Louis Fed President James Bullard penciling in a forecast for a rate range of 5.25% to 5.5% by the end of this year. The current range is 4.25% to 4.5%.

In after-hours trading, Netflix Inc. gained after reporting it added 7.66 million subscribers in the final quarter of 2022, easily topping the 4.5 million average estimate.

During the official session, Procter & Gamble Co. slid after reporting shrinking sales volume. Alcoa Corp. fell after saying aluminum shipments will be weaker than anticipated this year. Discover Financial Services dropped after the credit-card company warned write-off rates may double this year.

Read: Profit Pain Is About to Give Another Jolt to Teetering Stocks

Treasuries stayed lower throughout the session, with the 10-year yield rising 2 basis points, mirroring moves in German bunds after the head of the European Central Bank reaffirmed her aggressive stance. The dollar fell, while the euro and yen gained.

Adding to the somber mood, the US hit its federal debt limit and the Treasury Department began the use of special measures to avoid defaulting on any payments.

Read more: Treasury Starts Maneuvering Funds to Avoid Breaching Debt Limit

Data were mixed Thursday, with new US home construction declining for a fourth-straight month in December. Applications for US unemployment benefits unexpectedly fell last week, sliding to the lowest level since September and underscoring a strong jobs market. That followed figures a day earlier showing producer prices and retail sales fell, while business equipment production slumped.

“Wage growth has slowed, and broad data is weakening, but Fed officials (at least the ones that have spoken so far) are clearly reluctant to let financial conditions ease,” writes Dennis DeBusschere, of 22V Research. “The hyper focus on anchoring financial conditions will change as inflation continues to move lower/data weakens, but there are not enough data points for the Fed to be comfortable with that call yet.”

More commentary

“The factors driving the sharp YTD rally (short covering, risk bid and lower yields) appear to be hitting their near term bounds,” writes Chris Harvey, head of equity strategy at Wells Fargo. This will likely cause the market to trade sideways-to-down over the short term.”

“Jobless claims falling for the fourth week in a row is a sign that the labor market is still seemingly able to weather the storm, though the sizable layoffs at blue chips in these past weeks indicate the economic environment is weighing on companies–especially those in the tech sector,” said Mike Loewengart, head of model portfolio construction at Morgan Stanley Global Investment Office. “When considering that the overall earnings picture continues to be a mixed bag, investors shouldn’t be surprised to see more volatility in the weeks ahead.”

“What just some weeks ago would have seen markets cheering the weaker data as it would have suggested correctly that the Fed’s aggressive rate hike campaign is doing its job in tamping down the demand side of the economy, is now being judged more harshly with bad news no longer enjoying a warm welcome by traders and investors alike,” Quincy Krosby, chief global strategist for LPL Financial, writes. “The equity markets, always more cheerful than their fixed income brethren, have apparently begun to interpret data with a more realistic perspective.”

Key events this week:

  • Japan CPI, Friday

  • China loan prime rates, Friday

  • US existing home sales, Friday

  • IMF’s Kristalina Georgieva and ECB’s Lagarde speak in Davos, Friday

Here are some of the main market moves:

Stocks

  • The S&P 500 fell 0.8% as of 4 p.m. New York time

  • The Nasdaq 100 fell 1%

  • The Dow Jones Industrial Average fell 0.8%

  • The MSCI World index fell 0.9%

Currencies

  • The Bloomberg Dollar Spot Index fell 0.2%

  • The euro rose 0.4% to $1.0833

  • The British pound rose 0.3% to $1.2389

  • The Japanese yen rose 0.4% to 128.42 per dollar

Cryptocurrencies

  • Bitcoin rose 1.5% to $21,083.85

  • Ether rose 2% to $1,558.82

Bonds

  • The yield on 10-year Treasuries advanced two basis points to 3.39%

  • Germany’s 10-year yield advanced four basis points to 2.06%

  • Britain’s 10-year yield declined four basis points to 3.28%

Commodities

  • West Texas Intermediate crude rose 1.2% to $80.43 a barrel

  • Gold futures rose 1.4% to $1,934.10 an ounce

This story was produced with the assistance of Bloomberg Automation.

--With assistance from Richard Henderson, Denitsa Tsekova, Srinivasan Sivabalan, Emily Graffeo, Vildana Hajric and Isabelle Lee.

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