U.S. stocks end lower on mixed economic data, recession fears

NEW YORK: Wall Street's main indexes closed lower on Wednesday, as investors grappled with mixed economic data, rising Covid cases in China, and geopolitical tensions heading into 2023.

"There was no Santa rally this year. The Grinch showed up this December for investors," said Greg Bassuk, chief executive at AXS Investments in Port Chester, New York. December is typically a strong month for equities , with a rally in the week between Christmas and New Year's. The S&P 500 index has posted only 18 Decembers with losses since 1950, Truist Advisory Services data show.

"Normally a Santa Claus Rally is sparked by hopes of factors that will drive economic and market growth," Bassuk said. "The negative and mixed economic data, greater concerns around Covid reemergence and ongoing geopolitical tensions and ... all of that also translating Fed policy is all impeding Santa (from) showing up at the end of this year." All 11 of the S&P 500 sector indexes fell on Wednesday, with energy stocks as the biggest loser.

Investors have been assessing China's move to reopen its Covid-battered economy against the backdrop of a surge in infections. "With this current combination of rising cases with an opening up of China restrictions, we're seeing that investors are concerned that the ramifications are going to spread through many different industries and sectors as it did in the earlier Covid period," Bassuk said.

The benchmark S&P 500 is down 20% year-to-date, on track for its biggest annual loss since the financial crisis of 2008. The rout has been more severe for the tech-heavy Nasdaq Composite, which closed at the lowest level since July 2020. While recent data pointing to an easing in inflationary pressures has bolstered hopes of smaller interest rate hikes by the Federal Reserve, a tight labor market and resilient American economy have spurred worries that rates could stay higher for longer.

Markets are now pricing in 69% odds of a 25-basis point rate hike at the U.S. central bank's February meeting and see rates peaking at 4.94% in the first half of next year.. Shares of Tesla Inc rose in choppy trade, after hitting its lowest level in more than two years a day earlier. The stock is down nearly 69% for the year.

Southwest Airlines Co dropped a day after the carrier came under fire from the U.S. government for canceling thousands of flights. According to preliminary data, the S&P 500 lost 46.20 points, or 1.21%, to end at 3,783.05 points, while the Nasdaq Composite lost 138.33 points, or 1.34%, to 10,214.89. The Dow Jones Industrial Average fell 367.60 points, or 1.11%, to 32,873.96.