US stocks slide as economic data stokes rate hike worries

Stocks closed lower on Wall Street as stronger-than-expected reports on the economy caused worries to flare about interest rates staying high.

The S&P 500 closed 1.4 per cent lower after being down as much as 2.9 per cent earlier. The Nasdaq fell 2.2 per cent and the Dow gave up 1 per cent. Employers laid off fewer workers than anticipated last week and the economy grew more strongly in the summer than expected. Usually that would be good news, particularly when worries are high about a possible recession looming. But it also suggests the Federal Reserve may follow through on its pledge to stay aggressive on economy-crunching interest rates.

Usually, good data on the economy would be positive for markets, particularly when worries are high about a possible recession looming. But Thursday’s reports suggested the Federal Reserve may indeed follow through on its pledge to keep hiking interest rates and to hold them at a high level for a while in order to get inflation under control.

The Fed is particularly worried about a still-strong job market giving more oxygen to inflation, which has come down a bit in recent months but remains close to its highest level in decades. One report on Thursday indicated employers laid off fewer workers last week than expected, while a separate report showed that the broad U.S. economy grew more strongly during the summer than forecast.

The reports forced a reminder of a longstanding mantra on Wall Street: Don’t fight the Fed. When it’s raising interest rates, the Fed is intentionally slowing the economy and increasing the risks of a potential recession. Higher rates also drag down on prices for stocks and other investments.

High-growth technology stocks have taken some of the year’s worst hits because they’re seen as some of the most vulnerable to rising rates. A discouraging profit report from chipmaker Micron Technology cast even more of a pall on the industry Thursday.

Micron fell 2.8 per cent after it gave a weaker forecast for upcoming earnings than analysts expected as it faces softening demand.

Electric vehicle maker Tesla has also felt big pain from rising interest rates, though it’s also dealing with issues specific to itself and its CEO, Elon Musk. It tumbled 8.1 per cent, bringing its loss for the year to 64 per cent. It’s taking the rare step of offering discounts on its two top-selling models through year’s end, an indication demand is slowing.

Worries are rising broadly about corporate profits across industries, which are contending with the weight of higher interest rates, still-high inflation and rising costs rise due to payroll and other expenses. A drop-off in corporate profits in 2023 could knock out another support for stocks, after profits strengthened through much of 2022.