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Jan. 28, 2023

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Slump in tech stocks helps send Wall Street to another loss

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Wall Street ended a wobbly day of trading with more losses Wednesday, as a slide in technology companies helped pull stocks lower and Treasury yields fell broadly.

The S&P 500 slipped 0.2%, its fifth straight loss. The Nasdaq composite, which is heavily weighted with tech stocks, fell 0.5%, while the Dow Jones Industrial Average finished just barely in the green.

Treasury yields fell significantly. The yield on the 10-year Treasury, which influences mortgage rates, slid to 3.42% from 3.53% late Tuesday. The two-year Treasury yield, which tends to track market expectations of future action by the Federal Reserve, fell to 4.27% from 4.36%.

Investors have been dealing with a relative lack of news ahead of updates on inflation and consumer sentiment later this week, and the Federal Reserve’s meeting next week. Inflation, the Fed’s aggressive interest rate increases and recession worries remain the big concerns for Wall Street.

“Investors continue to position for rates to go higher for longer,” Sam Stovall, chief investment strategist at CFRA.

The S&P 500 slipped 7.34 points to 3,933.92. The Nasdaq fell 56.34 points to 10,958.55. The Dow managed a 1.58 point gain, essentially flat, at 33,597.92.

Small company stocks also edged lower. The Russell 2000 index fell 5.67 points, or 0.3%, to 1,806.90.

Every major index is on track for weekly losses.

Technology and communication services stocks were the biggest weights on the benchmark S&P 500 index. Apple fell 1.4% and Google parent Alphabet dropped 2.1%.

Health care stocks were among the few bright spots. Pfizer rose 1.1%.

Investors rewarded several companies for solid earnings reports. Campbell Soup rose 6% after reporting strong results.

Carvana plunged 42.9%, its biggest single-day drop on record, after analysts at Wedbush Securities warned that the used vehicle chain’s bankruptcy risk is rising. The company has lost 98% of its value since the beginning of the year.

U.S. crude oil prices fell 3%, settling at $72.01 per gallon, the lowest price this year.

Economic updates later this week could give investors more insight into inflation’s path ahead and how the Fed will continue fighting high prices.

The U.S. will release data on weekly unemployment claims on Thursday. The jobs market has been a strong area of the otherwise slowing economy and that has made it more difficult for the Fed to tame inflation.

The government will release a report on wholesale prices Friday that will provide more details on how inflation is affecting businesses. The University of Michigan will release a December survey on consumer sentiment on Friday.

The reports do not typically move markets but are receiving elevated attention as they are some of the final data dumps before the Fed meets next week.

The central bank is expected to raise interest rates by a half-percentage point at its meeting next week. It has raised its benchmark rate six times since March, driving it to a range of 3.75% to 4%, the highest in 15 years. Wall Street expects the benchmark rate to reach a peak range of 5% to 5.25% by the middle of 2023.

Inflation has been easing and economists expect the upcoming data on wholesale and consumer prices to reflect that trend. The pace has been slow, though, and the Fed has been very clear about its intent to keep raising interest rates until it is sure that inflation is cooling. That has raised concerns that the central bank could hit the brakes too hard on the economy and cause a recession.

A growing number of analysts expect the U.S. economy to slip into a recession in 2023, but are unsure of its potential severity and duration.

European markets mostly fell. Markets in Asia closed lower overnight. China rolled back more of its strict COVID-19 rules that have hindered that nation’s economy and added more uncertainty to global supply chains.

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