Business editor-at-large Liam Dann talks to Pie Funds founder and CIO Mike Taylor about what to expect after 1000 days in a bear market. Video / NZ Herald, Getty Images, AP
Wall Street slammed the brakes on its big rally following disappointing profit reports from companies and warnings that the market had simply gone too far, too fast.
The S&P 500 fell 1.5 per cent on Wednesday for its worst loss since beginning a monster-sized run shortly before Halloween.
The Dow dropped 1.3 per cent from its record high, while the Nasdaq composite sank 1.5 per cent.
FedEx tumbled 12.1 per cent for one of the market’s biggest losses after reporting weaker revenue and profit for the latest quarter than analysts expected.
It also now expects its revenue for its full fiscal year to fall from year-earlier levels, rather than being roughly flat, because of pressures on demand.
The package delivery company pumps commerce around the world, and its signal for potentially weaker demand could dim the hope that’s fueled Wall Street’s recent rally: that the Federal Reserve can pull off a perfect landing for the economy by slowing it enough to stifle high inflation but not so much that it causes a recession.
Fedex might be viewed as a bellwether for the broader economy - so its latest performance has not ignited optimism.
Winnebago Industries also fell short of analysts’ profit expectations for the latest quarter. The maker of motorhomes and other recreational products said it sold fewer units than a year earlier because of “market conditions” and had to offer higher discounts. Its stock dropped 5.6 per cent.
General Mills, which sells Progresso soup and Yoplait yogurt, reported stronger profit for the latest quarter than expected, but its revenue fell short as a recovery in its sales volume was slower than expected.
The company said a key sales measure may now fall for its full fiscal year because of “a more cautious consumer economic outlook” and other factors. Its stock fell 3.6 per cent.
Still, a pair of reports showed the US economy may be in stronger overall shape than expected. Both confidence among consumers in December and sales of previously occupied homes in November improved more than economists had expected.
Inflation cooling globally
Encouraging signs that inflation is cooling globally also continue to pile up.
Easing rises in prices are raising hopes that central banks around the world can pivot in 2024 from their campaigns to hike interest rates sharply, which were meant to get inflation under control.
For the Federal Reserve in particular, the general expectation is for its main interest rate to fall by at least 1.50 percentage points in 2024 from its current range of 5.25 per cent to 5.50 per cent, which is its highest level in more than two decades.
Treasury yields have been tumbling since late October on such hopes, and they fell again following the UK inflation report.
The yield on the 10-year Treasury dropped to 3.85 per cent from 3.93 per cent late Tuesday. It had been above 5 per cent in October, at its highest level since 2007 and putting harsh downward pressure on the stock market.
Lower interest rates and yields not only help the economy grow by making borrowing less expensive, they also boost prices for investments and relax the pressure on the overall financial system.
Specialist Michael Pistillo, left, works at his post on the floor of the New York Stock Exchange, Wednesday, Nov. 15, 2023. Wall Street is ticking higher Wednesday and adding a bit more to its big rally from a day before. (AP Photo/Richard Drew)
That has helped the S&P 500 to climb back within 2 per cent of its record set nearly two years ago. Wall Street’s main benchmark index also just came off its seventh straight week of gains, its longest such streak in six years.
“The market pendulum has swung from extreme pessimism less than two months ago to extreme optimism,” said Mark Hackett, chief of investment research at Nationwide.
The strength and length of that rally raised criticism that stocks have simply rallied too much, with several strategists on Wall Street forecasting at least a pause in the short term.
Tightrope walk for Fed
It’s still not certain whether the Fed can pull off what was seen as a nearly impossible tightrope walk for the economy.
And critics say the number of cuts to rates that Wall Street is forecasting for 2024 seems unlikely unless the economy falls into a recession, which would hurt corporate profits and thus stock prices.
Some officials from the Federal Reserve have also made recent comments saying it’s too early to consider a cut to rates in March, which is when traders largely expect them to begin, according to data from CME Group.
Wednesday’s losses in the stock market were widespread, and roughly 95 per cent of companies within the S&P 500 dropped.
All told, the S&P 500 fell 70.02 points to 4,698.35. The Dow dropped 475.92 to 37,082.00, and the Nasdaq sank 225.28 to 14,777.94.
In stock markets abroad, the FTSE 100 in London rose 1 per cent following the encouraging UK inflation report.
Indexes also rose across much of Asia, but stocks fell 1 per cent in Shanghai after China kept its benchmark lending rates unchanged at the monthly fixing on Wednesday.
-By AP Business Writer Stan Choe. AP Business Writers Matt Ott and Alex Veiga contributed to this report.
