US stocks sink as weak earnings and strong data weigh

Wall Street stocks tumbled on Thursday as a round of upbeat economic data bolstered expectations that the Federal Reserve will continue to aggressively lift borrowing costs to fight inflation.

The gloom was deepened further by weak earnings news, including from chipmaker Micron Technology, which announced plans to axe 10 per cent of its workforce, while used car dealer CarMax said it was halting buybacks and cutting costs after a four-fifths plunge in third-quarter net profit.

The S&P 500 was down 2 per cent in mid-afternoon dealings. The tech-heavy Nasdaq Composite index slid 2.8 per cent. The S&P 500 has fallen a fifth this year, leaving Wall Street’s blue-chip share index on track for its worst year since the 2008 financial crisis, according to Refinitiv data.

Thinner, year-end trading conditions were probably also a factor in the sharp moves as the holidays approached.

“No one wants to put on exposure at this point, everyone is just trying to finish the year,” said Jim Tierney, chief investment officer for US growth at fund manager AllianceBernstein.

He added: “The big issue in 2023 is going to be that now the Fed has done its thing, what does that mean for earnings growth?”

Shares in Tesla and Nvidia were among the biggest fallers on the S&P 500 on Thursday, dropping almost 10 per cent each. Both were big gainers from the bull market spurred by the Fed’s massive stimulus programme, launched during the depths of the 2020 coronavirus crisis. Both have fallen this year as markets have reeled from the US central bank’s decision to change course.

Before the market open, US third-quarter gross domestic product growth was unexpectedly revised higher to a 3.2 per cent annualised rate, from 2.9 per cent in November. Weekly initial jobless claims numbers were also lower than expected at 216,000, below the 222,000 forecast by economists.

The upward revision to US growth “[confirms] the Fed’s assertion that the real economy is on strong enough footing to endure restrictive monetary policy for an extended period of time,” said Ian Lyngen, head of US rates strategy at BMO Capital Markets.

Wall Street’s declines from the open also hit European stocks, which had earlier wavered between small losses and gains. The Stoxx Europe 600 fell 1 per cent, while the UK’s FTSE 100 gave up earlier rises to trade 0.4 per cent lower. Earlier, the MSCI Asia Pacific rose 0.8 per cent, recovering some poise after the Bank of Japan’s shock decision on Tuesday to relax its policy of pinning bond yields near zero.

The signs of US economic strength also dented appetite for interest rate-sensitive short-term government debt. The two-year Treasury yield rose slightly to 4.27 per cent.

Longer-term government debt continued to be steady after being shaken by the BoJ’s surprise move. The 10-year US Treasury yield fell 0.01 percentage points to 3.67 per cent, while yields in the eurozone and the UK climbed slightly.

In currency markets, the pound fell following data showing the UK economy contracted by a larger than expected 0.3 per cent in the third quarter from the previous three-month period. Sterling traded 0.4 per cent lower against the dollar at $1.203.

The figures suggested the anticipated downturn in the UK economy could arrive sooner than expected, said Investec economist Ellie Henderson.

“The question now is whether the economy manages to eke out growth in [the fourth quarter] and avoid a recession at the end of the year,” she said.