Wall St slides as economic data backs hawkish Fed

By Ankika Biswas and Sruthi Shankar

(Reuters) – Wall Street’s main indexes fell on Thursday, with technology and growth stocks leading the way as a slew of economic data pointed to resilience in the U.S. economy which could keep the Federal Reserve on track for aggressive interest rate hikes.

A hotter-than-expected consumer prices reading on Tuesday sparked Wall Street’s worst selloff in more than two years as investors fully priced in a 75 basis point rate hike from the U.S. central bank next week and even saw chances of a full percentage point rate increase.

Data on Thursday showed U.S. retail sales unexpectedly rebounded in August, while another set showed the number of people filing new claims for unemployment benefits fell to the lowest level in more than three months, in signs the economy could tolerate higher interest rates.

“Today’s reading for initial unemployment claims was an extremely low number,” said Yung-Yu Ma, chief investment strategist, BMO Wealth Management.

“It really solidifies a 75-basis-point increase by the Fed at the upcoming meeting, but also a tighter path for the Fed going forward and reinforces Powell’s notion that the labor market is a little bit too tight and he’s going be looking to soften that up.”

Money markets are pricing in a nearly 80% chance of a 75-basis-point hike at the Fed’s policy meeting on Sept. 20-21, while placing 20% odds of a 100-bps hike next week.

The yield on two-year Treasury notes, a bellwether for interest rate expectations, touched new 14-year highs at 3.86%. [US/]

Shares of rate-sensitive growth and technology stocks tumbled as alongside the rise in bond yields.

Apple Inc (NASDAQ:), Microsoft (NASDAQ:) and Alphabet (NASDAQ:) Inc fell about 2% each. Netflix Inc (NASDAQ:) gained 6.5% as Evercore ISI upgraded the stock to “outperform”.

Banks, which tend to benefit from a rising rate environment, gained 1.6%. Healthcare stocks got a boost from health insurer Humana Inc (NYSE:)’s strong earnings forecast.

At 12:39 p.m. ET, the was down 103.83 points, or 0.33%, at 31,031.26, the was down 31.10 points, or 0.79%, at 3,914.91, and the was down 128.85 points, or 1.10%, at 11,590.83.

Union Pacific (NYSE:) and Norfolk Southern (NYSE:) gained about 1% each after U.S. railroad operators and unions secured a tentative deal to avert a rail shutdown that could have hit food and fuel supplies across the United States.

CSX Corp (NASDAQ:) slipped 2.3% after it said Chief Executive Officer James Foote will retire this month.

Adobe (NASDAQ:) Inc slumped 16.9% after the Photoshop maker said it would buy Figma in a cash-and-stock deal that valued the online design startup at about $20 billion.

Declining issues outnumbered advancers for a 2.03-to-1 ratio on the NYSE and 1.14-to-1 ratio on the Nasdaq.

The S&P index recorded no new 52-week highs and 12 new lows, while the Nasdaq recorded eight new highs and 134 new lows.

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