Dow and stock market tumbles. So much for an end-of-year rally

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With just 10 days to Christmas, investors hoping for a Santa rally have found little holiday cheer this month, especially on Wall Street, on Thursday.

The Dow fell about 765 points, or 2.3%, on Thursday and fell 4% in December after solid gains in the previous two months. Verizon (VZ) was just one of 30 Dow shares in positive territory.

On Thursday, the S&P 500 fell 2.5% and the Nasdaq fell 3.2%. The S&P 500 is down 4.5% this month, while the Nasdaq is down nearly 6%.

Stocks fell on Thursday as investors continued to worry about the Federal Reserve’s latest economic forecasts. As expected, the Fed raised interest rates by “only” half a point on Wednesday. The Bank of England and the European Central Bank followed, with gains of half a percentage point on Thursday morning.

However, the Fed also stated that it predicts that the US economy will grow very little in 2023. The Fed’s new forecasts also project a larger jump in the unemployment rate, a larger rise in consumer prices and higher-than-expected interest rates in September.

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It didn’t help that the Commerce Department on Thursday reported a much larger-than-expected decline in November retail sales. All this has caused some to worry about the dire stagflation scenario of stagnant growth and persistent inflation. As a result, stocks can go through a difficult period.

“Today is not a buy-in-the-bottom day. 2022 has not been the year of bottoming. “If you did that, you lost money,” said Judith Lu, CEO of Blue Zone Wealth Advisors. “Inflation is very high and the Fed has a terrible job of getting it under control.”

Lu said he thinks stocks are currently overvalued, given that analysts expect earnings to grow only about 5% in 2023.

Of course, slowdown fears may not materialize. The economy may avoid a recession, and inflationary pressures may cool faster than expected. But at the very least, market volatility could return in the foreseeable future.

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Investors are concerned that the Fed (and perhaps other global central banks) will continue to act as well, even as there is evidence that consumers are starting to feel a punch or two from higher prices and higher interest rates. For its part, the labor market remains solid: Weekly jobless claims hit their lowest level since September.

“The holiday shopping season started with a whine, not a bang,” Jefferies economists Aneta Markowska and Thomas Simons said in a report on retail sales figures Thursday, commenting on TS Eliot.

“This year’s Black Friday sales clearly did not meet expectations,” they added.

It doesn’t help, either, that Powell made the mistake of being too hawkish before the holidays, when market movements often swell due to low trading volume at the end of the year.

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“Let’s not forget that Jay Powell ruined a Santa Rally in 2018 when he got too hawkish and raised rates, and then the market basically went into a bear market by Christmas Eve,” said Nancy Tengler, CEO of Laffer Tengler Investments. notice. “So I think you want to stay alert and focus on the long term.”

Some experts are hopeful that concerns about the economy will soon ease. After all, a recession at this point wouldn’t be a big surprise. Companies, consumers and investors have been preparing for one for months.

“The market was expecting a recession all year,” said Eric Marshall, portfolio manager at Hodges Capital. “This could be a shallower recession.”

Marshall said investors should look to battered stocks in the tech, healthcare and consumer sectors. They may be the first to return.


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