Stocks fell Thursday after inflation and jobs data came in better than expected, increasing concerns that the end of the Federal Reserve’s tightening campaign is nowhere near.
The S&P 500 dropped 0.6%. The Dow Jones Industrial Average slipped 0.7% while the tech-focused Nasdaq Composite lost 0.6%.
Supplier prices rose 0.7% in January from the prior month, the Labor Department said Thursday, the biggest gain since last summer. Economists polled by The Wall Street Journal had expected a 0.4% increase. Meanwhile, jobless–claims data showed little signs of the labor market cooling.
“It is increasingly difficult to see a significant U.S. recession on the horizon,” said
Christopher Smart,
chief global strategist at Barings and head of the Barings Investment Institute. “Much of the labor market continues to be white hot.”
After a red-hot record start to the year, stocks have limped along in recent weeks. Investors had grown optimistic that the fight against inflation was making strong progress, sending speculative assets charging higher. But a raft of data showed the economy was still surging on several fronts, including a booming jobs market, strong consumer spending and stubborn consumer-price increases.
Those prints served as a reminder that tamping down pricing pressures won’t be straightforward. Wagers on where the benchmark interest rate would peak were revised higher, and hopes have faded that central bankers might cut rates soon.
“It’s certainly possible that inflation will be stuck above 4% as the year ends,” said Mr. Smart. “The Fed may not need to raise rates much more than currently expected, but it may not be able to cut until well into next year.”
Investors and strategists say that has contributed to choppiness in the market.
“I think everyone feels lost,” said
Viraj Patel,
a global macro strategist at Vanda Research in London. Mr. Patel said that while views are split on interest rates and the possibility of a recession,“it feels like nobody wants to put their money where their mouth is.”
Mr. Patel pointed to investor positioning as evidence. Investors have pulled money out of U.S. equity mutual funds and exchange-traded funds in recent weeks, suggesting a level of apprehension. Meanwhile, a recent survey of
institutional clients found that roughly one-third plan to increase their exposure to stocks, close to record lows and down from recent higher levels.
Investors have pulled money from U.S. equity mutual funds and exchange-traded funds recently.
Photo:
Spencer Platt/Getty Images
Government-bond yields climbed Thursday after the data deluge. The yield on the benchmark 10-year U.S. Treasury note rose to 3.861%, from 3.806% Wednesday. The two-year yield, which is more sensitive to near-term monetary policy expectations, rose to 4.663% from 4.625%. Both yields have risen to their highest levels this year.
Elsewhere in markets, bitcoin saw a return of buyers Thursday after a new Securities and Exchange Commission proposal for the cryptocurrency sector wasn’t as harsh as some investors had expected. The digital currency touched its highest intraday level in six months on Thursday, nearing $25,000.
Overseas, the pan-continental Stoxx Europe 600 edged 0.2% lower. Asian indexes finished in mixed territory. Hong Kong’s Hang Seng Index rose 0.8%, while in mainland China, the Shanghai Composite fell 1%. Japan’s Nikkei 225 gained 0.7%.
Write to Caitlin McCabe at caitlin.mccabe@wsj.com
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