Stocks fell for the third straight day on Thursday, continuing the week’s volatile trading, as investors reviewed new data on the state of the economy and priced in their worries about the Federal Reserve’s plan to raise interest rates.
The S&P 500 dipped 0.5 percent, flirting with correction territory for the third day this week. The Nasdaq composite fell 1.4 percent.
A correction, a Wall Street term for a drop of 10 percent from a recent peak, serves as a signal that investors have turned more pessimistic about the market, and though the S&P 500 hasn’t closed a day in correction territory yet, it fell into it in intraday trading on Monday, Wednesday and Thursday before recovering. The index is 9.8 percent below its Jan. 3 high.
Shares of the electric vehicle maker Tesla, one of the largest companies in the S&P 500, which gives greater weight to more valuable companies, fell 11.6 percent on Thursday after the company warned on Wednesday afternoon that supply chain troubles could put a constraint on production through the coming year.
Stocks rebounded as much as 1.8 percent in early trading after the Commerce Department reported that the growth in gross domestic product — the broadest measure of the goods and services produced — expanded by 1.7 percent in the last three months of 2021. At an annual rate, the economy expanded at its fastest pace since 1984.
Economists saw several positive signals in the report. A jump in consumer spending, which the government said reflected an increase in spending on services like health care and recreation, was one. Also notable was a buildup in inventories despite the supply chain headwinds that companies have said are holding them back.
“While normally such a large inventory build would be very negative for future growth, in today’s environment it points to an easing of supply-chain snarls and means consumers will have more products to purchase once the winter lull passes,” Kathy Bostjancic, an economist at Oxford Economics, wrote in a note.
In a separate report on Thursday, the Labor Department said that weekly claims for state unemployment benefits fell last week after three consecutive weeks of increases. There were 260,000 new claims for unemployment insurance, down from 290,000, a dip that might suggest a slowdown of the Omicron variant’s effects on the labor market.
“The downtrend will likely continue given demand for labor remains strong and businesses remain reluctant to lay off workers amid a persistent labor shortage,” Rubeela Farooqi, chief U.S. economist at High Frequency Economics, wrote in a note.
But stocks have swung between gains and losses each day this week. On Wednesday the major indexes tumbled after the Federal Reserve fueled investor concerns that the central bank might move too quickly as it starts to raise interest rates.
The S&P 500, which is down about 9 percent since the start of the year, is on track for its worst month since the start of the pandemic.
The market volatility is likely to persist beyond the Fed’s first rate hike, which is expected to be in March, as indicators continue to provide reasons for the Federal Reserve to move on with its plan to remove support for the economy. The Omicron variant’s effect on supply chain backlogs could lead to a slowdown in 2022, reversing the surge in inventories seen in the last three months of last year. Also, if rising inflation continues to show no signs of deceleration, the Fed will seem obligated to move quickly on raising interest rates to tame it.
Markets in Europe swung between gains and losses, with the Stoxx Europe 600 ending the day up 0.7 percent. Asian markets closed lower, following Wednesday’s drop on Wall Street.
Shares of Southwest Airlines fell 2 percent after the company said in its quarterly earnings report that it expects to report a loss for the first three months of 2022 amid headwinds caused by the Omicron variant of the coronavirus. Apple and Mondelez International will publish their financial performance reports after the market close.