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U.S. stocks fell at the open on Friday, on track to cement their worst annual losses since 2008, as tax-loss harvesting along with anxieties about the outlook for corporate profits and the U.S. consumer took their toll.
Price action
-
The Dow Jones Industrial Average
DJIA,
-0.71%
fell 293 points, or 0.9%, to 32,926. -
The S&P 500
SPX,
-0.77%
dropped 41 points, or 1.1%, to 3,807. -
The Nasdaq Composite
COMP,
+3.18%
retreated 146 points, or 1.4%, to 10,332.
Stocks logged their biggest gains of the month on Thursday, with the Dow gaining 345 points, or 1.05%, to 33,221 as the main equity indexes rebounded following losses earlier in the week that had sent the Nasdaq Composite to a fresh closing low for the year.
What’s driving markets
Stocks and bonds have gotten crushed this year as the Federal Reserve surprised investors by raising its policy interest rate more aggressively in 2023 than many had expected as it sought to crush the worst inflation in four decades. As a result, the S&P 500 index is on track to end the year with a loss of roughly 20%, its worst annual performance since 2008.
“It was a challenging year for traders to navigate an entirely new set of shocks triggering the third consecutive year of outsized market swings,” said Stephen Innes, managing partner at SPI Asset Management.
Stock indexes have slumped in recent weeks as the latest rally inspired by hopes for a Fed policy pivot wilted in December after the central bank signaled that it would likely wait until 2024 to cut interest rates.
On the final day of the trading year, markets were also being hit by selling to lock in losses that can be written off of tax bills, a practice known as tax-loss harvesting, according to Kim Forrest, chief investment officer at Bokeh Capital Partners.
An uncertain outlook for 2023 was also taking its toll, as investors fretted about the strength of corporate profits, the economy and the U.S. consumer with fourth-quarter earnings season looming early next year, Forrest added.
“I think the Fed, and then earnings in the middle of January — those are going to set the tone for the next six months. Until then, it’s anybody’s guess,” she added.
The central bank has raised the Fed funds rate, its benchmark policy rate, by more than four percentage-points since the beginning of the year, driving borrowing costs to their highest levels since 2007.
The timing of the Fed’s first interest rate cut will likely have a major impact on markets, according to Forrest, but the outlook remains uncertain, even as the Fed has tried to signal that it plans to keep rates higher for longer.
On the economic data front, the Chicago PMI for December, the last major data release of the year, came in stronger than expected, climbing to 44.9 from 37.2 a month prior.
Companies in focus
-
Tesla Inc.
TSLA,
+0.30%
remained in focus as the company’s shares continued to bounce after their worst run of losses in more than four years. -
Southwest Airlines
LUV,
+0.54%
shares declined as the company said it expected its holiday travel fiasco to impact fourth-quarter profits.
