Dow falls over 600 points after strong economic data, bearish comments by David Tepper

U.S. stocks were sharply lower in afternoon trade Thursday, more than erasing their gains from their biggest rally in three weeks after a round of upbeat economic data and a warning from hedge-fund titan David Tepper that he was “leaning short” against both stocks and bonds on expectations the Federal Reserve and other central banks will continue tightening into 2023.

Positive economic news can be a negative for stocks by underlining expectations that monetary policy makers will remain aggressive in their efforts to quash inflation.

What’s happening
  • The Dow Jones Industrial Average
    fell 669 points, or 2%, to 32,708.

  • The S&P 500
    shed 97 points, or 2.5%, to 3,780.

  • The Nasdaq Composite
    fell 347 points, or 3.3%, to 10,362.

On Wednesday, all three major indexes recorded their best gain in three weeks as the Dow advanced 526.74 points.

What’s driving markets

Investors saw another raft of strong economic data Thursday morning, including a revised reading on third-quarter gross domestic product which showed the U.S. economy expanded more quickly than previously believed. Growth was revised up to 3.2%, up from 2.9% from the previous update released last month.

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

“Jobless claims ticking slightly up but coming in below expectations could be a sign that the Fed’s wish of a slowing labor market will have to wait until 2023,” said Mike Loewengart, head of model portfolio construction at Morgan Stanley Global Investment Office, in emailed comments.

“It’s no surprise to see the market take a breather today after yesterday’s rally as investors parse through earnings data, and despite some beats this week, expectations that earnings will remain as resilient in 2023 may be overblown,” he wrote.

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 hiking interest rates.

“I would probably say I’m leaning short on the equity markets right now because the upside-downside doesn’t make sense to me when I have so many people, so many central banks, telling me what they are going to do, what they want to do, what they expect to do,” Tepper said in a CNBC interview.

Key Words: Billionaire investor David Tepper would ‘lean short’ on stock market because central banks are saying ‘what they’re going to do’

The S&P 500’s information technology sector is leading the losses with semiconductor stocks such as Micron Technology Inc.
and Lam Research Corporation 
down over 7% and 10%, respectively.

Micron Technology said its revenue dropped by nearly half to $4.09 billion amid a fall in prices for its products, while reported a loss of $195 million for the quarter, according to its earnings report. The memory-chip specialist also disclosed that it plans to cut about 10% of its staff in 2023.

“I think that report really put investors on their heels that cyclical cycle that turned on retail is suffering badly. And I think it was just another signpost of the very fragile nature of the state of the economy at the moment,” said Mark Luschini, chief investment strategist at Janney Montgomery Scott.

See: Wall Street’s stock-market forecasts for 2022 were off by the widest margin since 2008: Will next year be any different?

In other economic data news, the U.S. leading index fell a sharp 1% in November, suggesting that the U.S. economy is heading toward a downturn.

Many market strategists are positioned defensively as they expect stocks could tumble to fresh lows in the new year.

Katie Stockton, a technical strategist at Fairlead Strategies, warned clients in a Thursday note that they should brace for more downside ahead.

“We expect the major indices to remain firm next week, helped by oversold conditions, but would brace for more downside in January given the recent downturn,” Stockton said.

Others said the latest data and comments from Tepper have simply refocused investors on the fact that the Fed, European Central Bank and now the Bank of Japan are preparing to continue tightening monetary policy.

“Yesterday was the short covering rally, but the bottom line is the trend is still short and we’re still fighting the Fed,” said Eric Diton, president and managing director of the Wealth Alliance.

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

Single-stock movers
  • Shares of AMC Entertainment Holdings 
    were down 16.1% after the movie theater operator announced a $110 million equity capital raise.

  • Tesla Inc. 
    shares continued to tumble as the company has been one of the worst performers on the S&P 500 this year. Tesla shares dropped 9.3%.

  • Shares of Verizon Communications Inc. 
    were down 1% on Thursday as the company heads for its worst year on record.

  • Shares of CarMax Inc. 
    tumbled 6.7% after the used vehicle seller reported fiscal third-quarter profit and sales that dropped well below expectations.

  • Chipmakers and suppliers of equipment and materials, including Nvidia Corp.
    Advanced Micro Devices 
    and Applied Materials Inc.
    were lower on Thursday.

— Steve Goldstein contributed reporting

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