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Wall Street closed sharply lower in a choppy session on Friday, dragged down by mega-cap tech stocks. A higher-than-expected inflation report and very high consumer spending numbers raised concerns that the Fed might further tighten policy. All three major indexes ended in the red.
How Did the Benchmarks Perform?
The Dow Jones Industrial Average (DJI) declined 1% or 336.99 points to close at 32,816.92. Twenty-four components of the 30-stock index ended in negative territory, while six ended in positive.
The S&P 500 fell 1.1% or 42.28 points to close at 3,970.04. Eight of the 11 broad sectors of the benchmark index ended in negative territory. The Real Estate Select Sector SPDR (XLRE), the Technology Select Sector SPDR (XLK) and the Consumer Discretionary Select Sector SPDR (XLY) slid 1.9%, 1.8% and 1.6%, respectively, while the Materials Select Sector SPDR (XLB) advanced 0.7%.
The tech-heavy Nasdaq dropped 1.7% or 195.46 points to finish at 11,394.94.
The fear-gauge CBOE Volatility Index (VIX) was up 2.5% to 21.67. A total of 10.3 billion shares were traded on Friday, lower than the last 20-session average of 11.5 billion. The S&P 500 recorded two new 52-week highs and 11 new lows, while the Nasdaq posted 44 new highs and 162 new lows.
PCE Inflation and Consumer Spending Numbers Become a Drag
U.S. consumer spending came in at a nearly two-year high for January, while PCE inflation rapidly advanced, adding fuel to the fear that the Federal Reserve could continue raising interest rates for much longer than expected. Earlier in the month, a robust labor market and other inflation indicators had raised concerns that the Fed might revert back to its policy of rapid rate hikes, and this latest report from the Commerce Department on Friday only came in as a confirmation.
Consumer spending accounts for more than two-thirds of U.S. economic activity. For January, it shot up 1.8%, its largest increase since March 2021. The December number was revised up to show that spending dipped 0.1% instead of falling 0.2% as previously reported. Investors worried that this might lead the Fed to infer that people have more money at their disposal to spend, and hence, would look for further clamp-downs.
The personal consumption expenditures (PCE) price index increased 0.6% last month, its largest increase since June 2022. In December, it had risen 0.2%. Year over year, the PCE price index advanced 5.4%. Excluding the volatile food and energy components, the core PCE price index also increased 0.6%. That was the biggest gain since August 2022 and follows a 0.4% rise in December. It increased 4.7% on a year-on-year basis in January after advancing 4.6% in December.
The PCE inflation index is often considered the Fed’s favorite inflation index, as the central bank is rumored to track it for monetary policy. With such high numbers reported for the same in January, the market felt the heat as a further Fed tightening of monetary policy became almost inevitable. Market participants are now expecting a 50 bps interest rate hike from the Fed’s March meeting.
The Bureau of Economic Analysis reported said that personal income increased $131.1 billion, or 0.6%, while consumer spending increased $312.5 billion, or 1.8%, in January. The increase in personal income primarily reflected an increase in compensation. Government social benefits decreased in January, reflecting a decrease in other benefits that was partly offset by an increase in Social Security. The personal saving rate was 4.7% in January compared with 4.5% in December.
The U.S. Census Bureau and the U.S. Department of Housing and Urban Development reported that New Home Sales for January came in at 670,000, against a Zacks Consensus Estimate of 615,000. For December, the number was revised up to 625,000, against the previously reported 616,000.
The University of Michigan reported that Consumer Confidence was at 67 for February, up 0.6 percentage points from the previously reported January number of 66.4.
Weekly Roundup
Wall Street’s major indexes ended the week with their biggest losses in 2023. The S&P 500 was down 2.7%, marking its worst week since Dec 9. The Dow fell 3% this week, recording the fourth straight losing week. The Nasdaq closed 3.3% lower, notching two negative weeks in three. Throughout the week, market participants have remained apprehensive that recent economic data and Fed minutes are indicating that further steep rate hikes are on the way.
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Stock Market News for Feb 27, 2023
Wall Street closed sharply lower in a choppy session on Friday, dragged down by mega-cap tech stocks. A higher-than-expected inflation report and very high consumer spending numbers raised concerns that the Fed might further tighten policy. All three major indexes ended in the red.
How Did the Benchmarks Perform?
The Dow Jones Industrial Average (DJI) declined 1% or 336.99 points to close at 32,816.92. Twenty-four components of the 30-stock index ended in negative territory, while six ended in positive.
The S&P 500 fell 1.1% or 42.28 points to close at 3,970.04. Eight of the 11 broad sectors of the benchmark index ended in negative territory. The Real Estate Select Sector SPDR (XLRE), the Technology Select Sector SPDR (XLK) and the Consumer Discretionary Select Sector SPDR (XLY) slid 1.9%, 1.8% and 1.6%, respectively, while the Materials Select Sector SPDR (XLB) advanced 0.7%.
The tech-heavy Nasdaq dropped 1.7% or 195.46 points to finish at 11,394.94.
The fear-gauge CBOE Volatility Index (VIX) was up 2.5% to 21.67. A total of 10.3 billion shares were traded on Friday, lower than the last 20-session average of 11.5 billion. The S&P 500 recorded two new 52-week highs and 11 new lows, while the Nasdaq posted 44 new highs and 162 new lows.
PCE Inflation and Consumer Spending Numbers Become a Drag
U.S. consumer spending came in at a nearly two-year high for January, while PCE inflation rapidly advanced, adding fuel to the fear that the Federal Reserve could continue raising interest rates for much longer than expected. Earlier in the month, a robust labor market and other inflation indicators had raised concerns that the Fed might revert back to its policy of rapid rate hikes, and this latest report from the Commerce Department on Friday only came in as a confirmation.
Consumer spending accounts for more than two-thirds of U.S. economic activity. For January, it shot up 1.8%, its largest increase since March 2021. The December number was revised up to show that spending dipped 0.1% instead of falling 0.2% as previously reported. Investors worried that this might lead the Fed to infer that people have more money at their disposal to spend, and hence, would look for further clamp-downs.
The personal consumption expenditures (PCE) price index increased 0.6% last month, its largest increase since June 2022. In December, it had risen 0.2%. Year over year, the PCE price index advanced 5.4%. Excluding the volatile food and energy components, the core PCE price index also increased 0.6%. That was the biggest gain since August 2022 and follows a 0.4% rise in December. It increased 4.7% on a year-on-year basis in January after advancing 4.6% in December.
The PCE inflation index is often considered the Fed’s favorite inflation index, as the central bank is rumored to track it for monetary policy. With such high numbers reported for the same in January, the market felt the heat as a further Fed tightening of monetary policy became almost inevitable. Market participants are now expecting a 50 bps interest rate hike from the Fed’s March meeting.
Consequently, shares of Tesla, Inc. (TSLA - Free Report) and Amazon.com, Inc. (AMZN - Free Report) fell 2.6% and 2.4%, respectively. Both carry a Zacks Rank #3 (Hold). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
Economic Data
The Bureau of Economic Analysis reported said that personal income increased $131.1 billion, or 0.6%, while consumer spending increased $312.5 billion, or 1.8%, in January. The increase in personal income primarily reflected an increase in compensation. Government social benefits decreased in January, reflecting a decrease in other benefits that was partly offset by an increase in Social Security. The personal saving rate was 4.7% in January compared with 4.5% in December.
The U.S. Census Bureau and the U.S. Department of Housing and Urban Development reported that New Home Sales for January came in at 670,000, against a Zacks Consensus Estimate of 615,000. For December, the number was revised up to 625,000, against the previously reported 616,000.
The University of Michigan reported that Consumer Confidence was at 67 for February, up 0.6 percentage points from the previously reported January number of 66.4.
Weekly Roundup
Wall Street’s major indexes ended the week with their biggest losses in 2023. The S&P 500 was down 2.7%, marking its worst week since Dec 9. The Dow fell 3% this week, recording the fourth straight losing week. The Nasdaq closed 3.3% lower, notching two negative weeks in three. Throughout the week, market participants have remained apprehensive that recent economic data and Fed minutes are indicating that further steep rate hikes are on the way.