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Wall Street slams the brakes for a rare slowdown after rally

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  • ASSOCIATED PRESS / DEC. 11
                                People walk past a Wall Street sign outside the New York Stock Exchange in New York.

    ASSOCIATED PRESS / DEC. 11

    People walk past a Wall Street sign outside the New York Stock Exchange in New York.

NEW YORK >> Wall Street hit the brakes on its big rally Wednesday following disappointing profit reports from companies and warnings that the market had simply gone too far, too fast.

The S&P 500 slumped 1.5% for its worst loss since beginning a monster-sized rally shortly before Halloween. The Dow Jones Industrial Average dropped 475 points, or 1.3%, from its record high, while the Nasdaq composite sank 1.5%

FedEx tumbled 12.1% for one of the market’s biggest losses after reporting weaker revenue and profit for the latest quarter than analysts expected. It also now expects its revenue for its full fiscal year to fall from year-earlier levels, rather than being roughly flat, because of pressures on demand.

The package delivery company pumps commerce around the world, and its signal for potentially weaker demand could dim the hope that’s fueled Wall Street’s recent rally: that the Federal Reserve can pull off a perfect landing for the economy by slowing it enough to stifle high inflation but not so much that it causes a recession.

Winnebago Industries also fell short of analysts’ profit expectations for the latest quarter. The maker of motorhomes and other recreational products said it sold fewer units than a year earlier because of “market conditions” and had to offer higher discounts. Its stock dropped 5.6%.

General Mills, which sells Progresso soup and Yoplait yogurt, reported stronger profit for the latest quarter than expected, but its revenue fell short as a recovery in its sales volume was slower than expected. The company said a key sales measure may now fall for its full fiscal year because of “a more cautious consumer economic outlook” and other factors. Its stock fell 3.6%.

Still, a pair of reports showed the U.S. economy may be in stronger overall shape than expected. Both confidence among consumers in December and sales of previously occupied homes in November improved more than economists had expected.

Encouraging signs that inflation is cooling globally also continue to pile up. In the United Kingdom, inflation in November unexpectedly slowed to 3.9% from October’s 4.6% rate, reaching its lowest level since 2021.

Easing rises in prices are raising hopes that central banks around the world can pivot in 2024 from their campaigns to hike interest rates sharply, which were meant to get inflation under control. For the Federal Reserve in particular, the general expectation is for its main interest rate to fall by at least 1.50 percentage points in 2024 from its current range of 5.25% to 5.50%, which is its highest level in more than two decades.

Treasury yields have been tumbling since late October on such hopes, and they fell again following the U.K. inflation report.

The yield on the 10-year Treasury dropped to 3.85% from 3.93% late Tuesday. It had been above 5% in October, at its highest level since 2007 and putting harsh downward pressure on the stock market.

Lower interest rates and yields not only help the economy grow by making borrowing less expensive, they also boost prices for investments and relax the pressure on the overall financial system. That has helped the S&P 500 to climb back within 2% of its record set nearly two years ago. Wall Street’s main benchmark index also just came off its seventh straight week of gains, its longest such streak in six years.

“The market pendulum has swung from extreme pessimism less than two months ago to extreme optimism,” said Mark Hackett, chief of investment research at Nationwide.

The strength and length of that rally raised criticism that stocks have simply rallied too much, with several strategists on Wall Street forecasting at least a pause in the short term.

It’s still not certain whether the Fed can pull off what was seen as a nearly impossible tightrope walk for the economy. And critics say the number of cuts to rates that Wall Street is forecasting for 2024 seems unlikely unless the economy falls into a recession, which would hurt corporate profits and thus stock prices.

Some officials from the Federal Reserve have also made recent comments saying it’s too early to consider a cut to rates in March, which is when traders largely expect them to begin, according to data from CME Group.

Wednesday’s losses in the stock market were widespread, and roughly 95% of companies within the S&P 500 dropped. All told, the S&P 500 fell 70.02 points to 4,698.35. The Dow dropped 475.92 to 37,082.00, and the Nasdaq sank 225.28 to 14,777.94.

In stock markets abroad, the FTSE 100 in London rose 1% following the encouraging U.K. inflation report. Indexes also rose across much of Asia, but stocks fell 1% in Shanghai after China kept its benchmark lending rates unchanged at the monthly fixing on Wednesday.

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