Stocks fell sharply Thursday after new data showed retail sales fell more than expected in November, raising fears that the Federal Reserve’s relentless interest rate hikes are tipping the economy into a recession.
The Dow Jones Industrial Average fell 458 points, or 1.35%. The S&P 500 dropped 1.56%, while the Nasdaq Composite lost 1.86%.
Investors absorbed a disappointing retail sales report that suggested inflation is taking a toll on consumers. Retail sales fell 0.6% in November, according to the Commerce Department. That was below Dow Jones estimates of a 0.3% decline.
Treasury yields declined following the latest Fed policy update, with the yield on the benchmark 10-year Treasury note falling below 3.5%.
Meanwhile, Tesla shares declined after CEO Elon Musk sold a chunk of his stake in the company.
Those moves follow a down session Wednesday when the Dow fell 142 points, while the S&P 500 declined 0.61% and the Nasdaq Composite dropped 0.76%.
Investors digested the Federal Reserve’s latest comments following a boost to its overnight borrowing rate. The central bank said it will continue hiking rates through 2023 and projected a higher-than-expected terminal rate of 5.1%. With Wednesday’s half a percentage point hike, the targeted range for rates is currently 4.25% to 4.5%, which is the highest in 15 years.
Despite favorable improvements like modest growth, spending and production, Powell indicated he remains concerned job gains are too robust and the unemployment rate is too good for the Fed’s fight against inflation.
“People assume earnings are going to come down, but it’s the magnitude of that decline and how fast it’s going to happen — we think that is where the surprise is,” Morgan Stanley’s Mike Wilson said Thursday on CNBC’s “Squawk Box.”
“That negative operating leverage that we see from that falling inflation… is what is going to hurt margins, and that’s irrespective of whether there is an economic recession,” Wilson added.
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