The good vibes on Wall Street are fading fast: US stocks tumbled yet again Friday as investors come to grips with a souring economy.
Dow futures were down 400 points, or 1.3%. S&P 500 futures fell 1.4%, and Nasdaq Composite futures were 1.1% lower.
CNN Business’ Fear and Greed Index, a measure of market sentiment, dipped perilously close to “Fear” Friday. The market had been in “Greed” mode for weeks.
Stocks had been riding high this month on weaker-than-expected inflation and a number of stronger-than-expected reports on the broad economy and the job market. Investors were hopeful that the Federal Reserve could slow its historic pace of rate hikes and inflation could right itself sometime next year without tipping the economy into a recession.
That excitement continued right up until Fed Chair Jerome Powell crashed Wall Street’s party Wednesday with some tough news: Economists at the Fed believe US gross domestic product, the broadest measure of America’s economy will barely grow next year. And they predict the US unemployment rate will rise to 4.6% by the end of 2023, which means roughly 1.6 million more Americans will be out of work.
Compounding fears from those dour Fed forecasts was a worse-than-expected retail sales report Thursday that sent stocks plunging. The Dow lost 765 points Thursday, or 2.3%, the index’s worst day in three months. The S&P 500 lost 2.5% and the Nasdaq tumbled 3.2%, their worst days in a month.
Now, economists at Moody’s Analytics predict America’s economy will grow at an annualized rate of just 1.9% in the fourth quarter, down from its previous estimate of 2.7%. Weak manufacturing and retail reports spooked Moody’s analysts, who also lowered their 2023 GDP forecast to just 0.9%, much lower than 2022’s 1.9% estimate.
“This leaves little room for anything to go wrong,” Moody’s economist Matt Colyar wrote in an analysis.
Sentiment on Wall Street can change on a dime, and this week is clear evidence of that: The Dow has tumbled about 1,100 points, or 3.4%, since the Fed’s policy update at 2 p.m. ET Wednesday, and the market hasn’t even opened yet Friday. Not helping stocks: It’s December. Many traders are on vacation, volume is low and tiny moves can get exacerbated.
But, as my colleague Matt Egan notes, the market may be in a lose-lose situation. Good economic news has been bad news for investors, because the Fed is trying to cool down the economy as part of its inflation-fighting campaign. But bad economic news is also bad for investors – and everyone – because it raises the risk of a recession.
– CNN’s Matt Egan contributed to this report