What’s Behind the Drops Seen on Wall Street Wednesday?

While many may have wished to leave negative economic trends in 2022, the trading results seen on Wall Street yesterday might have left something to be desired. By the ring of the closing bell on January 18th, a confluence of factors led to key U.S. Indices ending the day on a downtrend.

Indices Lose Momentum

As Wall Street traders packed it in on Wednesday afternoon, the S&P 500 (USA 500) had marked an over 1.5% decline in value, while the Nasdaq (US-TECH 100) and the Dow Jones Industrial Average (USA 30) were down by 1.2% and 1.8% respectively. What factors could have contributed to these broad-based drops?

Many expert market analysts are pointing to the latest United States economic data as the culprit for this shift to a negative market mood. Yesterday, retail sales data for the last month of 2022 was released, and showed a significant slowdown in U.S. economic activity as the year drew to a close. Over the course of December, retail sales dropped by over 1.1%, as consumers across the country struggled to grapple with the effects of continuing high inflation during the holiday season. This news dashed earlier hopes that American consumers would open their pocketbooks wide around Christmas, but it seems that a jump in retail sales in October took the wind out of the holiday shopping season’s sales. 

In addition, traders may have been hoping for signs from the Federal Reserve that the era of high interest rate hikes would soon be in the rearview mirror. However, two major figures in America’s monetary policy making apparatus are indicating that such relief is not in the cards as yet. Cleveland Fed President Loretta Mester, and her colleague at the St. Louis Fed, James Bullard, have stated that interest rates in the United States may need to exceed 5% to fully tamp down inflation in the country. 

Accordingly, markets may be bracing themselves for a 25 basis point hike following the conclusion of the Federal Open Market Committee’s next summit on February 1st. It is still unclear whether these indications will weigh on Wall Street’s trading results as the week comes to a close. (Source:Yahoo Finance)

Microsoft Hits the Brakes

While yesterday’s general stock drop may, in the end, turn out to be temporary, one of the biggest names in the American tech industry seems to be hitting some turbulence. Yesterday, venerable player in the software sector Microsoft (MSFT) announced to the public that it would be cutting its payroll by over 4%.

Chief Executive Satya Nadella clarified to employees that the move, which could cost Microsoft over $1 billion in severance payments, could be chalked up to the current challenging economic climate that’s been discouraging consumer spending and putting pressure on the bottom lines of firms across the economy. Microsoft seems to be gearing up for a shift away from its hardware lines and toward areas that may be more promising in terms of long-term growth, like cloud computing and artificial intelligence. The tech giant’s stock dropped by just under 1.9% in price yesterday in the wake of the news, coming on the heels of a more than 28% drop in 2022.

Rough macroeconomic waters are putting pressure on businesses in the United States and abroad as various players seek to maintain profits in the face of inflation and high interest rates. What lies ahead as we move further into 2023 remains to be seen.