Wall St dips as tight labor market fuels Fed worry

Wall St dips as tight labor market fuels Fed worry

  • Procter & Gamble falls after commodity cost pressure warning
  • Netflix down ahead of quarterly results
  • Dow down 0.36%, S&P 500 down 0.35%, Nasdaq down 0.55%

NEW YORK, Jan 19 (Reuters) – US stock indexes declined on Thursday after data pointing to a tight labor market fueled concerns the Federal Reserve will maintain its aggressive path of rate hikes and result in a policy error that could tilt the economy into a recession .

A report from the Labor Department showed weekly jobless claims were lower than expected, indicating the labor market remains solid despite the Fed’s efforts to stifle demand for workers.

Expectations the central bank would further dial down the size of its interest rate increases at its policy announcement next month were unchanged by the report. Investors have been looking for signs of weakness in the labor market as a key ingredient for the Fed to slow its policy tightening measures.

Jobless claims

Other data showed manufacturing activity in the mid-Atlantic region was subdued again in January, while data from the commerce department confirmed the recession in the housing market persisted.

“You’ve got two diametrically opposed pieces of data – one is weakening in spending data and stuff like that and on the other hand still fairly robust employment data,” said Peter Tuz, president of Chase Investment Counsel in Charlottesville, Virginia.

“It’s kind of like a see-saw, you don’t know what the Fed is going to do in terms of raising rates again, by how much, holding them steady, so are they going to overdo it?”

The Dow Jones Industrial Average (.DJI) fell 119.6 points, or 0.36%, to 33,177.36, the S&P 500 (.SPX) lost 13.93 points, or 0.35%, to 3,914.93 and the Nasdaq Composite (.IXIC) dropped 60.48 points, or 0.55%, to 10,896.53.

Recent comments from Fed officials continue to highlight the disconnect between the central bank’s view of its terminal rate and market expectations.

Boston Fed President Susan Collins echoed comments from other policymakers to support the case for interest rates to rise beyond 5%. Fed vice chair Lael Brainard said the Fed is still “probing” for the level of interest rates that will be necessary to control inflation.

Markets, however, see the terminal rate at 4.89% by June and have largely priced in a 25-basis point rate hike from the US central bank in February, with rate cuts in the back half of the year. .

Both the S&P 500 and the Dow were poised to fall for a third straight session, their longest streak of declines in a month.

On the earnings front, Procter & Gamble Co (PG.N) fell 1.04% after warning of commodity costs pressing profits, despite raising its full-year sales forecast.

Analysts now expect year-over-year earnings from S&P 500 companies to decline 2.8% for the fourth quarter, according to Refinitiv data, compared with a 1.6% decline in the beginning of the year.

Netflix Inc (NFLX.O) fell 0.94% ahead of its results scheduled for after the closing bell on Thursday, in which it is expected to report its slowest quarterly revenue growth.

Declining issues outnumbered advancing ones on the NYSE by a 1.50-to-1 ratio; on Nasdaq, a 1.63-to-1 ratio favored decliners.

The S&P 500 posted one new 52-week highs and two new lows; the Nasdaq Composite recorded 37 new highs and 31 new lows.

Reporting by Chuck Mikolajczak, editing by Deepa Babington

Our Standards: The Thomson Reuters Trust Principles.

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