Wall Street’s major averages closed sharply lower on Thursday with the technology-heavy Nasdaq leading declines amid investor worries that data showing a resilient economy would lead the U.S. Federal Reserve to keep hiking interest rates for longer than feared.

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By 4:00 p.m. ET, the Dow Jones Industrial Average fell 348.26 points, or 1.04 per cent, to 33,028.22, the S&P 500 lost 55.84 points, or 1.44 per cent, to 3,822.6 and the Nasdaq Composite dropped 233.25 points, or 2.18 per cent, to 10,476.12.

Fresh U.S. data on Thursday pointed to a resilient economy, driving concern that the Fed has a longer way to redress price growth. Initial jobless claims rose less than forecast in the week ended Dec. 17, underscoring the strength in the labour market. Third-quarter gross domestic product was revised to 3.2 per cent — compared with a previously reported 2.9 per cent advance — on firmer spending.

“Today’s data is telling us that the consumer has a lot more strength than I think what the market was pricing in,” Priya Misra, head of global rates strategy at TD Securities, said on Bloomberg Television. “When the accumulated savings they’ve had since COVID, when that runs out, which we think happens by the middle of next year, that’s when consumer spending slows down.”

U.S. inflation is going to be sticky on the way down because the labour market has remained resilient so far, Misra said. That’s going to keep the Fed on its path of rate hikes, she said.

“So we actually think that the Fed’s going to be hiking all the way up until May to reach 5.5 per cent, and then be very reluctant to ease policy,” she said. “I mean, we have a recession in our base case, but we think the Fed’s going to be very late in terms of when they can start to ease because of that sticky inflation.”

The S&P 500’s large decline this month contrasts with an average 1.5 per cent December gain since 1950, providing sidelined global investors with plenty of “dry powder” to put to work, according to analysts at SEB.

Meanwhile concerns are growing that Japanese investors could be persuaded to bring home some of the trillions of dollars they have stashed in foreign stocks and bonds as the yen and local bond yields rise in the wake of this week’s hawkish pivot from the Bank of Japan. That could further lift global borrowing costs and drag on already cooling economic growth, with euro zone bonds seen especially vulnerable.

Additional reporting by Reuters 
Bloomberg.com