Stocks open lower for a second day
Stocks were sharply lower Thursday after retail sales for November fell more than expected, raising fears that the Federal Reserve’s relentless interest rate hikes are tipping the economy into a recession.
The Dow Jones Industrial Average fell 336 points, or 0.99%. The S&P 500 dropped 1.16%, while the Nasdaq Composite lost 1.28%.
— Sarah Min
Earnings recession will surprise investors, drag market down in 2023, says Mike Wilson
Next year’s story for the stock market is all about earnings, which are going to fall significantly, said Morgan Stanley’s Mike Wilson. That rapidly slowing growth isn’t priced into the market yet, he said in an interview with “Squawk Box” Thursday.
“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,” said Wilson, the firm’s U.S. equity strategist. “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.”
He’s predicting 11% decline in year-over-year growth for S&P 500 companies next year. While his year-end target for the index is 3,900, he anticipates it will drop to between 3,000 and 3,300 in the first quarter.
The earnings recession will be brought on by a whole host of reasons, including an economy that has been overstimulated, demand destruction from higher prices and the Federal Reserve’s rate hikes this year, Wilson said. There will also be a reaction from corporations.
“At some point confidence just fails and the corporations stop sending because they’re like, ‘We’ve got to batten down the hatches a little bit,'” he said.
— Michelle Fox
Jobless claims slip, Philly manufacturing index remains negative
Two economic data points released Thursday showed declines that signal differences in parts of the economy.
Jobless claims fell again to 211,000 for the week ending Dec. 10, down 20,000 from the previous week according to the Labor Department. Continuing claims for the week ending Dec. 3 were 1,671,000, about the same as last week’s report.
The Philadelphia Manufacturing Index rose 6 points but remained negative at -13.8, signaling contraction. It’s the fourth consecutive negative reading of the index, and the sixth in seven months.
—Carmen Reinicke
November retail sales are weaker than expected
Retail and food services sales fell 0.6% in November after rising 1.3% in the prior month, according to the Commerce Department. That was below Dow Jones estimates of a 0.3% decline.
Excluding autos, retail sales dipped 0.2%, below Dow Jones estimates for a 0.2% gain in spending.
— Sarah Min
Stocks making the biggest moves premarket
These are the companies making headlines before the bell:
- Tesla (TSLA) – Tesla fell 1.2% in premarket trading after an SEC filing showed that Elon Musk sold another $3.6 billion in shares. The stock is down 55% year to date through Wednesday.
- Warner Bros. Discovery (WBD) – Warner Bros. Discovery raised its projected costs for scrapping planned content by $1 billion to a total of $3.5 billion. The media company has been implementing cost-cutting measures since the merger of AT&T‘s WarnerMedia unit and Discovery earlier this year. Warner Bros. Discovery lost 1.2% in the premarket.
- Lennar (LEN) – Lennar slid 2.6% in the premarket after forecasting a slowdown in orders for new homes, stemming from higher mortgage rates. The home builder also reported lower-than-expected earnings for its latest quarter, although revenue was slightly above analyst forecasts.
— Peter Schacknow
Bank of England announces half-point hike
The Bank of England hiked its benchmark interest rate by half a percentage point on Thursday, mirroring the Federal Reserve’s move yesterday.
The Bank of England’s key rate is now at 3.5%. The central bank had implemented a three-quarters point hike in November.
Inflation cooled slightly to 10.7% in the UK in November. The Bank of England said it expects UK GDP to fall by 0.1% in the fourth quarter.
— Jesse Pound, Elliot Smith
Markets not buying into Fed rate expectations in ‘dot plot’
Federal Reserve officials on Wednesday penciled in the likelihood of taking their primary interest rate target above 5% in 2023. Markets don’t seem convinced.
Futures contracts tied to the fed funds rate implied a “terminal rate” or endpoint for increases at 4.88% by next summer, according to CME Group data Thursday morning. That contrasts with the Fed’s “dot plot” of individual members’ expectations, which put the median expectation for the terminal rate at 5.1%.
Pricing also implied a 72% chance of a quarter percentage point interest rate hike in February, which would be another step down from the torrid pace the Fed had set for much of 2022. The central bank on Wednesday raised its benchmark rate half a point to a target range of 4.25%-4.5%, a move that came after four straight three-quarter-point increases.
Morgan Stanley said it sees the Fed ending rate hikes in February, due in large part to economic weakness that will prevent further tightening.
“Job gains are in focus, and we continue to look for a significant slowing in the months ahead, which we expect will stop the Fed short of delivering hikes past February,” the firm said in a note Thursday morning.
Markets figure the fed to take the funds rate to a range of 4.75%-5% by mid-year, then cut half a point by the end of 2023.
—Jeff Cox
China officials set to loosen Covid rules and boost economy, WSJ says
China is pivoting back to a focus more on economic growth with senior officials drafting a plan for 5% GDP growth next year, The Wall Street Journal reported, citing people familiar with the matter.
The plan involves easing Covid restrictions and boosting the real estate sector, the report said.
Economic data in China recently has been weak, raising concerns about a global recession. November trade data announced last week came in lower than expected.
Crude oil is barely higher for the year on fears of a global downturn after trading above $120 a barrel earlier in the year.
If China does shift to more of a growth focus, it could help the outlook for stocks and commodities for 2023.
— John Melloy
Western Digital falls after Goldman downgrade
Western Digital shares fell more than 4% in the premarket after a downgrade to sell from Goldman Sachs.
According to the bank, “the ongoing downturn in NAND, and historically low gross margins by extension, could pose risk to WD’s competitive position, particularly as net debt to TTM EBITDA elevates over the coming quarters.”
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— Sam Subin
Tesla drops after Elon Musk sells more shares
Tesla dipped more than 2% after CEO Elon Musk sold roughly $3.6 billion worth in shares of the electric vehicle maker. According to VerityData, has sold 94,202,321 shares so far this year at an average price of $243.46 per share for pre-tax proceeds of approximately $22.93 billion.
Earlier this year, he told social media followers that he wasn’t planning on selling any more stock after April 28.
— Fred Imbert, Lora Kolodny
Sterling, euro fall against U.S. dollar as risk aversion returns
Bank of England seen hiking by a half-point as inflation shows signs of peaking
The Bank of England faces the unenviable task of navigating a slowing economy, sky-high inflation and an extremely tight labor market.
The market is broadly pricing in a 50 basis point hike on Thursday to take its main Bank Rate to 3.5%, a slowdown from November’s 75 basis point increase, its largest in 33 years.
Having hit a 41-year high in October, the annual rise in the U.K. consumer price index slowed to 10.7% in November, new figures revealed Wednesday.
– Elliot Smith
Swiss central bank hikes interest rates by 50 basis points to counter ‘further spread of inflation’
The Swiss National Bank increased its benchmark interest rate Thursday for the third time this year, taking it to 1%.
The central bank said it was looking to counter “increased inflationary pressure and a further spread of inflation” with the move.
Inflation in the country remains well above the Swiss National Bank’s target of 0-2%, but is noticeably below the soaring rates of neighboring European countries. Switzerland’s inflation rate remained steady at 3% last month, having dropped from a three-decade high of 3.5% in August.
– Hannah Ward-Glenton
China’s November retail sales see significant miss
China’s industrial production for November grew 2.2%, after seeing a growth of 5% in October, according to official data. That’s lower than expectations for growth of 3.6% in a Reuters survey.
Retail sales fell 5.9% on an annualized basis, further than expectations of a decline of 3.7% in a Reuters survey and a fall of 0.5% the previous month.
— Jihye Lee
Lennar shares rise after hours
Shares of Lennar fell more than 2% in extended trading following the homebuilder’s quarterly financial results.
Lennar posted earnings of $4.55 per share, falling short of estimates of $4.90, according to Refinitiv. The company’s outlook for new orders also missed estimates. Revenue came in higher than expected, however.
Bond king Gundlach says the Fed should not do more rate hikes
DoubleLine Capital CEO Jeffrey Gundlach said he believes the Federal Reserve should stop raising rates after the latest hike as the economy is already weakening.
“I think they should not do any more hikes after today,” Gundlach said on CNBC’s “Closing Bell Overtime” Wednesday, adding that the central bank might do one more 25-basis-point rate increase.
The so-called bond king said the central bank will be “highly encouraged” by the inflation data in the next six months. Gundlach predicted that the consumer price index will fall to 4.1% in June from a peak of 9.1%. The index increased 7.1% last month from a year ago, rising less than expected.
“I think there has been some progress on inflation,” Gundlach said. “Nobody’s really talking about all of these runaway price increases anymore. With the economy weakening, I think the inflation rate is going to fall faster than most economists do.”
— Yun Li
Stock futures open flat
Stock futures opened little changed on Wednesday night as investors digested the Federal Reserve’s latest policy update.
Dow Jones Industrial Average futures were up 20 points, or 0.06%. Futures tied to the S&P 500 were higher by 0.07%. Nasdaq 100 futures also hovered above the flat line at 0.03%.
—Tanaya Macheel
