Dow Plunges 900 Points After Retail Sales Post Biggest Drop In Nearly A Year

Topline

The stock market fell for a second straight session on Thursday after data showed retail sales are deteriorating more quickly than experts projected—fueling concerns the nation could be headed into a recession just one day after the Federal Reserve reiterated its commitment to lowering inflation, even if it further hurts the economy.

Key Facts

The Dow Jones Industrial Average plunged deeper into negative territory throughout Thursday, with the index falling 931 points, or 2%, to 33,044 by 1:30 p.m. ET, as the S&P 500 and tech-heavy Nasdaq tanked 2.8% and 3.4%, respectively.

Stock losses first piled on after the Census Bureau reported retail and food sales in November unexpectedly fell more than economists projected, down 0.6% to $689.4 billion after climbing 1.3% in October.

Faced with a nationwide car shortage and a housing market collapse, consumers spent 2.3% less on motor vehicles and car parts, and 2.5% less on building materials and gardening equipment—among the biggest declines on a month-to-month basis, the government reported.

In an email, Pantheon Macro economist Kieran Clancy said the report marks the first decline in retail sales since a slump in December 2021 spurred by the Omicron variant of Covid-19, and likely has additional room to run.

“We are on alert for a sharp slowdown in the first quarter,” Clancy said, noting the decline in auto sales “punctuates a sharply rising trend,” with spending down nearly 17% since before the pandemic, and that housing-related purchases (such as building materials, furniture and appliances) should weaken more as home sales continue to fall.

Crucial Quote

“The headwinds of the past year are catching up to consumers and forcing them to be more conservative in their holiday shopping this winter,” Morgan Stanley economists led by Ellen Zentner said in a Thursday morning note to clients, estimating 70% of consumers are waiting for discounts before starting their holiday shopping this year—a stark change from the rush to buy gifts early last year as consumers faced low store inventories.

Key Background

With less than two weeks until 2023, the stock market is on track for its worst year since the Great Recession as the Fed’s interest rate hikes slow consumer demand and a growing number of companies—bracing for a potential recession—announce job cuts. Fed officials fueled those recession concerns on Wednesday as they raised interest rates by another 50 basis points (to the highest level since 2008) and said additional rate hikes next year would be appropriate to help bring down the nation’s stubbornly high inflation.

Tangent

After skyrocketing nearly 27% in 2021, the S&P is down 18% this year, and existing-home sales have fallen nine-straight months to an annual rate of 4.4 million—down 32% since January.

Further Reading

Fed Raises Rates Another 50 Basis Points—Signals More Hikes To Come Next Year (Forbes)