February 22nd, 2024

Stock market today: Wall Street slams the brakes for a rare slowdown following record-setting rally

By Stan Choe, The Associated Press on December 20, 2023.

NEW YORK (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% Wednesday for its worst loss since beginning a monster-sized run shortly before Halloween. The Dow dropped 1.3% from its record high, while the Nasdaq composite sank 1.5%. FedEx tumbled after cutting its revenue forecast. Weakness for FedEx could damage hopes that the economy can conquer high inflation without a recession. But a pair of economic reports were also stronger than expected, and a cooler-than-expected report on U.K inflation helped Treasury yields ease.

THIS IS A BREAKING NEWS UPDATE. AP’s earlier story follows below.

NEW YORK (AP) – Wall Street’s monster-sized rally since Halloween is easing off the accelerator Wednesday following mixed reports showing disappointing profits at companies but unexpected strength for the economy.

The S&P 500 fell 0.8% after shedding an early gain. It’s still within 1.4% of its record set nearly two years ago. The Dow Jones Industrial Average was down 222 points, or 0.6%, coming off its own record. The Nasdaq composite slid 0.8%, as of 2:57 p.m. Eastern time.

FedEx tumbled 11.3% after reporting weaker revenue and profit for the latest quarter than analysts expected. It also now expects its revenue for the 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 the signaling of weaker demand could erode the hope that has 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 to cause a recession.

Winnebago Industries, the maker of motorhomes and other recreational products, also fell short of analysts’ profit expectations for the latest quarter. It said it sold fewer units than a year earlier because of “market conditions” and had to offer higher discounts. Its stock sank 3.5%.

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 2.7%.

Still, a pair of reports showed the U.S. economy may be in stronger overall shape than expected. Both consumer confidence in December and sales of previously occupied homes in November improved more than economists had expected. The reports helped the S&P 500 eliminate what had been modest losses earlier in the morning.

Encouraging signs that inflation is cooling globally also continue. In the United Kingdom, inflation in November unexpectedly slowed to 3.9% from October’s 4.6% rate, reaching its lowest level since 2021.

Milder inflation is raising hopes that central banks around the world can pivot in 2024 from their campaigns to hike interest rates sharply in order to snuff out further big increases in prices. For the Federal Reserve in particular, the 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% to 5.50%, 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 U.K. inflation report.

The yield on the 10-year Treasury slipped to 3.87% from 3.93% late Tuesday. It had been above 5% 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.

Stocks of oil and gas companies were mostly lower even as the price of crude clawed back some more of its sharp losses from recent months.

Overall, the S&P 500 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.

But the strength and length of the rally has also raised criticism that stocks have simply rallied too much.

It’s still not certain the Fed can pull off what was seen as a nearly impossible tightrope walk not long ago. 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 comments recently saying it’s too early to consider a cut to rates in March, which is when the majority of traders expect them to begin, according to data from CME Group.

In stock markets abroad, the FTSE 100 in London rose 1% following the encouraging U.K. inflation report. Indexes also rose across much of Asia, but stocks fell 1% in Shanghai after China kept its benchmark lending rates unchanged at the monthly fixing on Wednesday.

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AP Business Writers Matt Ott and Alex Veiga contributed to this report.

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