Dow drops 500 points as economic data fans rate hike worries

Wall Street’s main indexes dropped on Thursday after fresh data underscored strength in the economy and aggravated concerns over the Federal Reserve’s continued policy tightening.

The Dow Jones Industrial Average tumbled 528 points, or 1.6%, at 32,849, the S&P 500 was down 2.1%, and the Nasdaq was down 2.9%.

Losses in rate-sensitive megacap growth stocks such as Apple, Microsoft and Amazon pulled technology and consumer discretionary shares lower.

The final estimate of third-quarter US GDP revealed gross domestic product increased at a 3.2% annualized rate, above the previous estimate of 2.9%.

Meanwhile, a Labor Department report showed the number of Americans filing for state unemployment benefits increased to 216,000 last week, much below economists’ estimate of 222,000, indicating a still tight labor market.

“The GDP data beat a lot of expectations. There are concerns that the economy is not giving up too easily and it’s putting up a fight that will likely require the Fed to remain hawkish and keep interest rates higher for longer,” Sam Stovall, chief investment strategist at CFRA Research in New York, said.

Wall Street’s main indexes marked their biggest daily gain so far in December on Wednesday, with help from upbeat Nike and FedEx quarterly earnings, as well as improving consumer confidence and easing inflation expectations.

Fears of a recession following the central bank’s prolonged interest rate hikes have weighed heavily on equities this year, with the benchmark S&P 500 set for annual declines of 19.7%, its worst such performance since the 2008 financial crisis.

The Fed and Chairman Jerome Powell struck a hawkish tone last week at its policy meeting by saying that it expects interest rates to remain higher for longer, sparking a selloff across stock markets.

The bets for a 25-basis point hike to 4.5%-4.75% in February by the Fed remained largely unchanged at around 70% following the data on Thursday, although expectations for the terminal rate inched up to 4.89% by May 2023. 

Micron Technology slipped 3.2% after the chipmaker forecast a bigger-than-expected second-quarter loss, sparking declines in peers.

Nvidia, Qualcomm, Advanced Micro Devices and Intel were down between 3.0% and 5.1%, pushing the Philadelphia SE Semiconductor index more than 3% lower.

CarMax slid 8.6% to the bottom of the S&P 500 after the used-vehicles retailer paused share buybacks following an 86% plunge in quarterly profit.

AMC Entertainment Holdings slumped 12.5% after the world’s largest cinema chain said it would raise $110 million through a preferred stock sale.