Dow Jones falls nearly 500 points after strong data, bearish comments from David Tepper

US stocks traded lower on Thursday, erasing most of their gains from its 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” both stocks and bonds on expectations the Federal Reserve and other central banks will continue to tighten until 2023.

Positive economic news can be negative for stocks by underscoring expectations that policymakers will remain aggressive in their efforts to quell inflation.

What’s happening
  • The Dow Jones Industrial Average DJIA,
    it fell 472 points, or 1.4%, to 32,903.

  • The S&P 500 SPX,
    it lost 71 points, or 1.8%, to 3,807.

  • The Nasdaq Composite COMP,
    it fell 272 points, or 2.5%, to 10,437.

A day earlier, the three major indices posted their best gains in three weeks as the Dow rose 526.74 points.

What is driving the markets?

Investors saw another set of strong economic data on Thursday morning, including a revised third-quarter gross domestic product reading that showed the US economy expanded faster than previously believed. Growth was revised up to 3.2%, up from 2.9% in the previous revision published last month.

See: The economy grew at a rate of 3.2% in the third quarter thanks to strong consumer spending

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

“Jobless claims up slightly but below expectations could be a sign that the Fed’s desire for a slowing job market will have to wait until 2023. While weekly jobless claims aren’t the best indicator of the labor market in general, have been maintained. in a solid range these past two months, suggesting that the labor market remains strong and has resisted Fed tightening, at least for now,” said Mike Loewengart, head of model portfolio construction at the Office of Investments. Morgan Stanley Global, in emailed comments.

“While weekly jobless claims are not the best indicator of the overall labor market, they have remained in a solid range over the past two months, suggesting that the labor market remains strong and has withstood Fed tightening. At least for the moment,” he said. he wrote her. “It’s no surprise to see the market take a breather today after yesterday’s rally as investors scrutinize earnings data, and despite some progress this week, expectations that earnings will remain just as resilient in 2023 may be overstated.” “.

Stocks were feeling the pressure after Appaloosa Management’s Tepper shared a cautious outlook for markets based on the expectation that central bankers around the world will continue to raise interest rates.

“I would probably say I’m shorting the equity markets right now because the upside doesn’t make sense to me when I have so many people, so many central banks, telling me what they’re going to do, what they want to do, what they hope to do,” he said. Tepper in an interview with CNBC.

Keywords: Billionaire investor David Tepper ‘would go short’ on the stock market because central banks are saying ‘what they’re going to do’

A day earlier, the Conference Board’s consumer confidence survey peaked at eight months, which helped fuel a rally in shares initially fueled by strong earnings from Nike Inc. and FedEx Corp. posted Tuesday night. This optimistic outlook helped stocks post their best daily performance in three weeks.

Volumes are starting to dry up as the year winds down, making the markets more susceptible to bigger moves. According to Dow Jones Market Data, Wednesday saw the lowest combined volume on major exchanges since Nov. 29.

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

In other economic data news, the US leading index fell 1% in November, suggesting that The US economy is headed for a recession.

Many market strategists are on the defensive as they expect stocks to fall to new lows in the new year.

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

Katie Stockton, technical strategist at Fairlead Strategies, warned clients in a note on Thursday that they should prepare for further declines to come.

“We expect the major indices to hold firm next week, helped by oversold conditions, but would brace for further declines in January given the recent recession,” Stockton said.

Others said Tepper’s latest data and comments have simply refocused investors on the fact that the Fed, the European Central Bank and now the Bank of Japan are preparing to further tighten 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, Wealth Alliance president and CEO.

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