Christmas is just 10 days away, and investors hoping for a Santa Claus rally found little holiday cheer on Wall Street this month, especially on Thursday.
The Dow fell nearly 765 points, or 2.3%, on Thursday, and is down 4% in December after steady gains over the previous two months. Verizon ( VZ ) was the only one of the 30 Dow stocks in positive territory.
The S&P 500 fell 2.5% and the Nasdaq fell 3.2% Thursday. The S&P 500 is now off 4.5% for the month, while the Nasdaq is down nearly 6%.
Stocks slid on Thursday as investors continued to worry about the Federal Reserve’s latest economic outlook. The Fed raised interest rates by “just” half a point on Wednesday, as expected. The Bank of England and the European Central Bank followed suit with half-point increases on Thursday morning.
But the Fed also said it expects the US economy to barely grow in 2023. The Fed’s new projections also call for a bigger jump in the unemployment rate, higher growth in consumer prices and higher interest rates than expected in September.
It didn’t help that the Commerce Department reported a much bigger-than-expected drop in retail sales on Thursday. All this has led some to worry about the dreaded stagflation scenario of stagnant growth and sustained inflation. As a result, stocks may experience a rough stretch.
“This is not a buying day. 2022 was not a buying year. if you did, you lost money,” says Judith Lu, CEO of Blue Zone Wealth Advisors. “Inflation is too high and the Fed has this monstrous job of trying to regulate it.”
Lu said he thinks the stock is overvalued right now, given that analysts expect earnings to grow about 5% in 2023 alone. Those projections are likely “wishful thinking” and “too ambitious,” he added.
Of course, fears of a slowdown may not materialize. The economy may avoid slipping into recession, and inflationary pressures may cool faster than expected. But at the very least, market volatility may return in the foreseeable future.
Investors are worried that the Fed (and likely other global central banks) will also continue to act, even though there is already evidence that consumers are starting to feel the one-two punch of higher prices and higher interest rates. In turn, the labor market remains on solid foundations. weekly jobless claims just hit their lowest level since September.
Jefferies economists Aneta Markowska and Thomas Simons paraphrased TS Eliot in a report on Thursday’s retail sales numbers, saying that “the holiday shopping season has begun with a whimper, not a bang.”
“This year’s Black Friday sales clearly fell short of expectations,” they added.
It also doesn’t help that Powell has made the mistake in the past of being too hawkish before the holidays, a time when market moves are often magnified by the year-end decline in trading volume.
“Let’s not forget that Jay Powell crashed the Santa Claus rally in 2018 when he got too bullish and raised rates, and then the market basically went into a bear market until Christmas Eve,” said Nancy Tengler, CEO of Laffer Tengler Investments. report. “So I think you want to stay vigilant and focus on the long term.”
Some experts hope worries about the economy will soon ease. After all, a fall wouldn’t be a huge surprise at this point. Businesses, consumers and investors have been struggling for a month.
“The market has been anticipating a recession all year,” said Eric Marshall, portfolio manager at Hodges Capital. “This could be a more shallow decline.”
Marshall said investors should look out for stocks in the technology, health care and consumer staples sectors that have deteriorated. They may be the first to push back.