Stocks drop as earnings season improves, and economic data rolls in

US stocks turned lower on Wednesday as Wall Street continued to analyze companies’ financial updates for signs of the “earnings slump” that many analysts have warned of.

Investors also took stock of the government’s monthly retail sales report, which reflected a slowdown in consumer spending activity, along with a cooler-than-expected inflation reading.

The S&P 500 (^GSPC) fell 0.4%, while the Dow Jones Industrial Average (^DJI) fell 250 points, or 0.7%. The technology-heavy Nasdaq Composite (^IXIC) fell 0.2%.

St. Louis Federal Reserve Chairman James Bullard said Wednesday that he and his colleagues should move interest rates above 5% “as quickly as possible” to rein in inflation before pausing the current rising cycle.

“Why don’t we go where we’re supposed to go?” he said at a Wall Street Journal event. “Why procrastinate?”

Meanwhile, Federal Reserve Chairman Jerome Powell has tested positive for COVID-19 and is experiencing mild symptoms.

“Chairman Powell Updates COVID-19 Vaccines and Boosters,” the Fed said in a statement. “Following Centers for Disease Control and Prevention guidelines, he is working remotely while isolating at home.”

On the economic data front, the Commerce Department said on Wednesday that US retail sales fell 1.1% last month, while November’s reading was also revised down. Economists had expected a 0.8% decline in December.

Meanwhile, the producer price index, which measures inflation at the wholesale level, fell 0.5% last month — the biggest drop since the pandemic. The headline producer price index rose 6.2% annually, down significantly from the annualized reading of 7.3% in November. This edition comes one week after the Consumer Price Index (CPI) showed that inflation eased to 6.5%.

NEW YORK, NY – JANUARY 17: Traders work on the floor of the New York Stock Exchange during morning trading. (Photo by Michael M. Santiago/Getty Images)

In corporate news, Microsoft Corporation (MSFT) said Wednesday that it will lay off 10,000 workers as part of an effort to cut costs. Layoffs impact roughly 4.5% Of the company’s total employees of 221,000 employees. Microsoft shares fell more than 1% in late morning trading.

Shares of United Airlines (UAL) lost steam after rallying earlier in the session after better-than-expected earnings for the last three months of 2022 and an upbeat outlook for the new year – underscoring the resilience of travel demand even though airfares have risen.

Shares of International Business Machines Corporation (IBM) fell nearly 2% after Morgan Stanley downgraded its rating to Equal-Weight from Overweight.

Shares of Moderna (MRNA) rose nearly 4% after the biotech company said results from a late-stage clinical trial of its vaccine against RSV were effective and that it would seek approval for the shot from the Food and Drug Administration by the middle of the year. .

Investors are nearing the peak of what is likely to be a tough earnings season in the fourth quarter. Analysts have revised their forecasts for earnings growth downward. The S&P 500 is expected to post an annual profit decline of 3.9% for the fourth quarter, according to data from FactSet Research — the first annual profit decline reported by the index since late 2020 if materialized. .

DataTrek’s Nicholas Colas notes that while the near-term declines in S&P sequential earnings are similar to those that preceded the last four recessions, there isn’t enough evidence at this point to support an economic downturn or a significant decline in corporate results.

“What we don’t have — yet — is the vision of the catalyst that will drive the next set of larger negative quarterly comparisons,” Colas said.

“Yes, last year’s aggressive monetary policy by the Fed may continue to roil the US economy in 2023 and reduce corporate earnings,” he added. “So far, however, there are not enough economic data points to demonstrate a recession in 2023 and/or significantly reduced corporate earnings.”

Investors were also watching a decisive move by the central bank overseas early on Wednesday. The Bank of Japan kept its monetary policy unchanged, maintaining ultra-low interest rates and capping bond yields, contrary to market expectations. The yen fell against the dollar after the result.

In commodities markets, oil extended a winning streak. West Texas Intermediate (WTI) crude futures rose 2% to $81.80 a barrel.

Alexandra Semenova is a correspondent at Yahoo Finance. Follow her on Twitter @tweet

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