Dow drops 200 points on fears of Fed tightening

Chris Verone of Strategus charts the markets

Shares fell on Thursday as investors grew increasingly concerned that the Federal Reserve would continue raising rates despite signs of slowing inflation.

The Dow Jones Industrial Average declined 251 points, or 0.8%, erasing its January gains. The S&P 500 and Nasdaq Composite shed 0.8% and 1.1%, respectively, and were still hanging onto their monthly gains.

All major averages are on negative momentum for the week. The Dow is down 3.5%, while the S&P and Nasdaq are down more than 2% on a weekly basis.

Stocks extended their slide on Thursday after the Labor Department reported that initial filings for unemployment insurance last week fell to their lowest levels since June, signaling to investors that the labor market is resilient amid a slowing economy.

“Despite all the big-tech layoffs since the pandemic, the jobs market remains hot,” said Ed Moya, senior market analyst at OANDA. “The labor market needs to break to allow the Fed to keep rates relaxed.”

Seasonally adjusted total claims for the week ending Jan. 14 were 190,000, a decline of 15,000 from the previous period. Economists polled by Dow Jones were looking for 215,000.

Investors are looking through the latest data and comments from the Fed for clues on how higher rates will move. But, while recent data points to easing inflation, JPMorgan Chase CEO Jamie Dimon thinks rates will stay above 5%.

“I think there’s a lot of underlying inflation that won’t go away that quickly,” Dimon said on CNBC’s “Squawk Box” from the World Economic Forum in Davos, Switzerland.

Wall Street is coming off a losing session. The S&P 500 fell 1.56% on Wednesday for its worst day since December 15. The Dow dropped more than 613 points, or 1.81%. The tech-heavy Nasdaq Composite fell 1.24%, snapping seven-straight days of gains. Bank stocks such as JP Morgan, Bank of America and Wells Fargo weighed on the broader market.

Disappointing retail sales and a weaker-than-expected producer price index ignited recession fears, sending stocks down on Wednesday.

Elsewhere, investors are watching key quarterly reports to see whether an earnings slowdown is coming. Netflix will report earnings after the bell.

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