Stocks give up early gains as traders struggle to find their footing in 2023

'Buy cheap and out of favor' this quarter, says Paul McCully, FMR.  PIMCO Chief Economist

Shares were volatile and rates edged lower on Wednesday as investors digested a key economic data report that showed little change in the strength of the US economy amid the Federal Reserve’s rate hikes to slash inflation.

The Dow Jones Industrial Average fell 35 points, or 0.11%, after two economic reports erased earlier gains. The S&P 500 and Nasdaq Composite also reversed course, with gains of 0.02% and 0.32%, respectively. Microsoft shares fell more than 5% after the downgrade from UBS had an impact on the broader market.

The November Job Openings and Labor Turnover report, or JOLTS, came in slightly better than anticipated, indicating continued labor market strength. The ISM Manufacturing Index was also roughly inline in December.

US stocks began 2023 with losses on Tuesday as rising rate concerns, higher inflation and recession fears crushed hopes that Wall Street could start the new year on a positive note. The S&P 500 and Nasdaq Composite declined 0.4% and 0.8%, respectively, while the Dow closed below breakeven. Heavy fall in Apple and Tesla shares also weighed on major indices.

“U.S. stocks were unable to hold onto earlier gains as restrictive policy and recession fears remained front and center for investors,” Ed Moya, senior market analyst at Oanda, wrote in a note to clients on Tuesday. “Discount buying started another bear market rally that didn’t last long.”

Investors will learn more about what Fed members are thinking when the minutes of the central bank’s latest policy meeting are released on Wednesday afternoon. Earlier in the day, the Job Openings and Labor Turnover Survey, or JOLTS, and ISM manufacturing data were due.

Friday’s December jobs report will also be closely watched as it is the last read on the labor market before the Fed meeting in February.

“It’s too early to bet on Fed pivot this year, and that makes this a difficult environment for stocks,” Moya said.

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