Stocks are retreating this morning amid increased worries about a looming recession in America and concerns about Congress’ inability to raise the debt ceiling.
Additionally, the Federal Reserve’s apparent insistence on continuing to raise interest rates despite falling inflation is pulling stocks down as well.
Renewed Recession Fears Are Keeping Stocks Down
Renewed worries about a recession have emerged, dampening the rally of U.S. stocks that was partially triggered by enthusiasm about China’s recent reopening.
Yesterday Washington reported that U.S. retail sales had dropped 1.1% in December versus November. Economists, on average, had anticipated a 0.8% decline. Excluding gasoline and automobiles, sales fell 0.7% month-over-month and jumped 8.5% year-over-year.
However, U.S. retail sales last month climbed 6%, compared with December 2021 and, in the fourth quarter, retail sales increased 6.7% YOY. Nevertheless, Wall Street is viewing the December data negatively, and as an indication that a recession is around the corner.
Also stoking recession worries was a 0.7% month-over-month decline in industrial production reported by the Fed yesterday.
The Fed Remains Somewhat Hawkish Despite Declining Inflation
The Consumer Price Index (CPI) fell 0.1% in December versus November, and the Producer Price Index (PPI) sank 0.5% last month.
This data has led the Street to become less concerned about inflation. “The slowdown in demand and slowing producer inflation toward year-end is a positive sign that the Fed’s more restrictive monetary policy is having a real impact in combating inflation,” Sam Millette, fixed-income strategist for Commonwealth Financial Network told the Wall Street Journal yesterday.
Nonetheless, St. Louis Fed President James Bullard said yesterday morning that the central bank should raise its benchmark rate higher than 5% “as quickly as we can.” The rate is currently 4.25%-4.5%. Bullard’s hawkishness seemed to torpedo a rally by U.S. stocks yesterday that was continuing even after the retail sales and production data were disclosed.