Dow and the stock market fall. So much for the year-end rally

New York

Christmas is only ten days away, and investors are still hoping for a Santa Claus rally. There has been little holiday cheer on Wall Street so far this month.

The Dow fell more than 800 points, or 2.4%, on Thursday and is down about 4% in December after solid gains in the previous two months. Verizon (VZ) was the only one of the 30 Dow stocks in positive territory.

The S&P 500 fell 2.6% and the Nasdaq fell 3% on Thursday. The S&P 500 is now down more than 4% for the month, while the Nasdaq is down nearly 5.5%.

Stocks slid on Thursday as investors remained concerned about the Federal Reserve’s latest economic outlook. The Fed raised rates by “just” half a percentage point on Wednesday, as expected. The Bank of England and the European Central Bank followed suit on Thursday morning with half-point increases of their own.

But the Fed also indicated it expects the US economy to barely grow in 2023. The Fed’s new forecasts also call for a bigger jump in the unemployment rate, higher consumer price growth and higher interest rates than expected in September.

It didn’t help that the government reported a much larger-than-expected fall in retail sales for November on Thursday. All of this has led some to worry about a dire stagflation scenario of stagnant growth and persistent inflation.

Those fears may not come true. The economy could avoid slipping into recession, and inflationary pressures could cool faster than expected. But, at the very least, market volatility may return for the foreseeable future.

Investors are concerned that the Fed (and possibly other global central banks) will also continue to act even though there is evidence that consumers are starting to feel the one-two punch of higher prices and higher interest rates…even though the labor market remains an active solid base . Weekly jobless claims just hit their lowest level since September.

Jeffrey economists Annette Markowska and Thomas Simmons paraphrased TS Eliot in a report on Thursday’s retail sales figures, saying “the holiday shopping season didn’t start with a bang, but a whimper.”

“This year’s Black Friday sales clearly fell short of expectations,” they added.

It also doesn’t help that Powell has previously made the mistake of being too hawkish before the holidays, a time when market movements are often magnified by lower year-end trading volume.

“Let’s not forget that Jay Powell ruined the 2018 Santa rally when he got very tongue-in-cheek and talked about rate hikes, and then the market basically went into a bear market by Christmas Eve,” said Nancy Tengler, CEO of Laffer Tengler Investments. in the report. “So I think you want to stay cautious and focused on the long term.”

Some experts hope that the jitters about the economy will soon subside. After all, a recession would not be a big surprise at this point. Companies, consumers and investors have been preparing for months.

“The market has been 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 the losers in the technology, healthcare and consumer sectors. They may be the first to return.

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