U.S. stocks turned lower Wednesday as Wall Street continued to parse through corporate financial updates for signs of the “earnings recession” many analysts have warned about.
Investors also assessed the government’s monthly retail sales report, which reflected a slowdown in consumer spending activity, along with a cooler-than-expected inflation reading.
St. Louis Fed President James Bullard said Wednesday that he and colleagues should move interest rates above 5% “as quickly as we can” to rein in inflation before pausing the current hiking cycle.
“Why not go to where we’re supposed to go?” he said at a Wall Street Journal event. “Why stall?”
Meanwhile, Federal Reserve Chair Jerome Powell tested positive for COVID-19 and is experiencing mild symptoms.
“Chair Powell is up to date with COVID-19 vaccines and boosters,” the Fed said in a statement. “Following Centers for Disease Control and Prevention guidance, he is working remotely while isolating at home.”
On the economic data front, the Commerce Department on Wednesday said retail sales in the U.S. fell 1.1% last month, while November’s reading was also revised downward. Economists had expected a 0.8% decline in December.
Meanwhile, the Producer Price Index (PPI), which measures inflation at the wholesale level, decreased 0.5% last month — the biggest drop since the pandemic. Headline PPI rose at an annual 6.2% clip, down meaningfully from the year-over-year reading of 7.3% in November. The print comes one week after the Consumer Price Index (CPI) showed inflation ease to a cooler 6.5%.
In corporate news, Microsoft (MSFT) said Wednesday that it is laying off 10,000 workers as part of an effort to cut costs. The layoffs impact roughly 4.5% of the company’s 221,000 total employees. Microsoft shares were down more than 1% in late-morning trading.
Shares of United Airlines (UAL) lost momentum after climbing earlier in the session following better-than-expected earnings for the last three months of 2022 and an upbeat outlook for the new year — underscoring resilient travel demand even despite high airfares.
Shares of International Business Machines Corporation (IBM) fell nearly 2% following a downgrade from Morgan Stanley to Equal-Weight from Overweight.
Moderna (MRNA) shares rose nearly 4% after the biotech company said results from a late-stage clinical trial for its vaccine against RSV was effective and that it would seek approval for the shot from the Food and Drug Administration by the middle of the year.
Investors are approaching the thick of what’s likely to be a challenging fourth-quarter earnings season. Analysts have been downwardly revising their forecasts for earnings growth. The S&P 500 is projected to report a year-over-year decline in earnings of 3.9% for the fourth quarter, according to data from FactSet Research — the first year-over-year decline in earnings reported by the index since late 2020 if realized.
DataTrek’s Nicholas Colas notes that while near-term declines in sequential S&P earnings resemble those that have preceded the last four recessions, there is not enough evidence at this point to support an economic downturn or sizable drop-off in corporate results.
“What we don’t have – yet – is visibility into the catalyst which will drive the next set of larger negative quarterly comparisons,” Colas said.
“Yes, last year’s aggressive Fed monetary policy may still bite the US economy in 2023 and take corporate earnings lower,” he added. “As of right now, however, there are not enough economic data points to make an airtight case for a 2023 recession and/or substantially lower corporate earnings.”
Investors were also watching a crucial central bank move overseas early Wednesday. The Bank of Japan kept monetary policy unchanged, maintaining its ultra-low interest rates and a cap on its bond yield, contrary to market expectations. The yen dropped against the dollar following the outcome.
In commodities markets, oil extended a streak of gains. West Texas Intermediate (WTI) crude futures rose 2% to $81.80 per barrel.
Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter @alexandraandnyc