Dow Drops Over 450 Points, Markets Sink Following Flurry Of Worrisome Economic Data

Topline

Fueled by a drop in big technology stocks and pandemic darlings, the market tanked Thursday as investors backed off of Wednesday’s cautious optimism, with several macroeconomic indicators highlighting recession concerns and fears of more hawkish monetary policy.

Traders work on the floor of the New York Stock Exchange Thursday as stocks shed Wednesday’s gains.

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Key Facts

The Dow Jones Industrial Average fell 1.5%, or 458 points, reversing its 540-point gain a day prior, while the tech-heavy Nasdaq fell 2.8% and the S&P 500 2.1%.

Investors reacted negatively to employment data revealing a tighter-than-expected labor market, interpreting it as fuel for the Federal Reserve to pursue further interest rate hikes.

Several other economic indicators further spooked the market, including surging mortgage rates, a declining U.S. economy and the British government digging into its controversial economic policy.

“Labor market conditions will likely keep the Fed on track to aggressively tighten monetary policy at the next meeting in November,” Jeffrey Roach, LPL Financial’s chief economist, said Thursday.

Shares of at-home fitness company Peloton fell 14% Thursday after the company announced a partnership with Dick’s Sporting Goods, briefly hitting an all-time low below $7, while shares of fellow pandemic-era risers Carvana and CarMax each fell about 20%.

The S&P fell across all sectors, but technology giants Alphabet, Meta, Apple and Amazon were among the most notable losers, each falling more than 2.5%, while Tesla dropped 6.8%.

Apple’s dip came after Bank of America downgraded its rating of the company from buy to neutral due to concerns about lagging demand as the company heads into the iPhone 14 cycle—the stock is down more than 6% over the last two days.

Surprising Fact

The Dow is down over 7% in September, 20% year-to-date and is just 7% above its high before the start of the Covid-19 pandemic, noted Bespoke Investment Group.

Key Background

Investors continue to respond poorly to Peloton’s numerous changes to its business model, and its stock is down more than 95% from its January 2021 peak. Seasonally adjusted initial jobless claims fell to 193,000 last week, coming in far lower than economists’ estimates and hitting their lowest level in five months, according to data released Thursday by the Department of Labor. Inflation remains at its highest level in four decades and, considering that inflation has historically risen as unemployment falls, a tighter labor market is considered justification for further interest rate hikes by the Federal Reserve. Fed chair Jerome Powell said last week the “labor market continues to be out of balance.” The U.S. gross domestic product contracted by 0.6% in the second quarter of 2022, according to the Bureau of Economic Analysis’ final estimate released Thursday, the second straight quarter of negative growth—technically marking a recession.

Big Number

6.7%. That’s the 30-year fixed mortgage rate, mortgage provider Freddie Mac said Thursday, the highest level since July 2006. Mortgage rates are up from 5.66% a month ago and 3.01% a year prior. Mortgage payments are up 15% compared to six weeks ago, according to real estate broker Redfin.

Crucial Quote

“For a more sustained rally, investors will need to see convincing evidence that inflation is coming under control, allowing central banks to become less hawkish,” Mark Haefele, UBS’ chief investment officer, said Thursday.