Dow drops nearly 500 points after strong data and bearish comments from David Tepper

U.S. stocks traded lower on Thursday, erasing most of their gains from their biggest rally in three weeks after a string of upbeat economic data and a warning from hedge fund titan David Tepper that he was “leaning short” against stocks and bonds on expectations the Federal Reserve and other central banks will continue to tighten through 2023.

Positive economic news can be negative for equities by underscoring expectations that monetary policy makers will remain aggressive in their efforts to stifle inflation.

What is happening
  • The Dow Jones Industrial Average DJIA,
    fell 472 points, or 1.4%, to 32,903.

  • The S&P 500 SPX,
    lost 71 points, or 1.8%, to 3,807.

  • The Nasdaq Composite COMP,
    fell 272 points, or 2.5%, to 10,437.

A day earlier, the three major indexes recorded their best gain in three weeks as the Dow Jones advanced 526.74 points.

What drives the markets?

Investors saw another round of strong economic data on Thursday morning, including a revised third-quarter gross domestic product reading that showed the U.S. economy grew faster than previously thought. Growth was revised up to 3.2%, down from 2.9% from the previous revision released last month.

See: The economy grew 3.2% in the third quarter on strong consumer spending

The number of Americans applying for unemployment benefits the week before Christmas rose slightly to 216,000, but new applications remained low and indicated that the job market is still quite strong. Economists polled by The Wall Street Journal had forecast new claims to total 220,000 in the seven days ending Dec. 17.

“The slightly higher but lower than expected unemployment insurance claims could be a sign that the Fed’s wish for a labor market slowdown will have to wait until 2023. Although weekly unemployment insurance claims may not be the best indicator of the broader labor market, they have remained in a robust range for the past couple of months, suggesting that the labor market remains strong and has resisted Fed tightening, at least for the moment,” Mike Loewengart, head of model portfolio construction at Morgan Stanley Global Investment Office, said in emailed comments.

“Although weekly jobless claims are not the best indicator of the broader labor market, they have remained in a robust range for the past two months, suggesting that the labor market remains strong and has resisted the tightening. from the Fed, at least for now,” he said. wrote. “It’s no surprise to see the market taking a breather today after yesterday’s rally as investors analyze the earnings data, and despite some dips this week, expectations that earnings will remain as resilient in 2023 could be exaggerated.”

Stocks were feeling pressure after Appaloosa Management’s Tepper shared a cautious outlook for markets based on the expectation that central bankers around the world will continue to raise interest rates.

“I would probably say I’m leaning into the stock markets right now because bullishness doesn’t make sense to me when I have so many people, so many central banks, telling me what they’re going to do, what they want to do, what they expect to do,” Tepper said in an interview with CNBC.

Key words: Billionaire investor David Tepper would ‘look short’ on stock market because central banks say ‘what they’re going to do’

A day earlier, the Conference Board’s consumer confidence survey hit its highest level in eight months, helping fuel a rally in stocks initially spurred by strong earnings from Nike Inc. and FedEx Corp. published Tuesday evening. This bullish outlook helped stocks post their best daily performance in three weeks.

Volumes begin to dry up as the year draws to a close, making markets more sensitive to larger moves. According to Dow Jones Market Data, Wednesday saw the lowest combined volume on major exchanges since Nov. 29.

Read: Is the stock market open on the Monday after Christmas?

In other economic data news, the US leading index fell 1% in November, suggesting the US economy is heading for a slowdown.

Many market strategists are positioning themselves on the defensive as they expect stocks to fall to new lows in the new year.

See: Wall Street’s stock market forecast for 2022 was the furthest since 2008: will next year be different?

Katie Stockton, technical strategist at Fairlead Strategies, warned clients in a Thursday note that they should be prepared for more declines to come.

“We expect the major indices to remain firm next week, helped by oversold conditions, but we would be bracing for further declines in January given the recent slowdown,” Stockton said.

Others said the latest data and comments from Tepper simply refocused investors that the Fed, European Central Bank and now the Bank of Japan are gearing up for further monetary policy tightening.

“Yesterday was the short hedge rally, but the bottom line is the trend is still short and we’re still fighting the Fed,” said Eric Diton, chairman and CEO of Wealth Alliance.

Single stock movers
  • AMC Entertainment Holdings
    fell sharply after the cinema operator announced a $110 million capital raise.

  • Tesla Inc.
    shares continued to fall as the company was one of the worst performers in the S&P 500 this year.

  • Shares of Verizon Communications Inc.
    were down again on Thursday as the company headed for its worst year on record.

  • Shares of CarMax inc.
    fell after the used-vehicle seller reported fiscal third-quarter earnings and sales well below expectations.

  • Chipmakers and equipment and material suppliers, including Nvidia Corp.
    Advanced micro-systems
    and Applied Materials Inc.
    were down on Thursday.

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