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Market Snapshot: U.S. stocks finish modestly lower to kick off 2023 with last year’s pattern — more losses

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U.S. stocks were trading lower Tuesday afternoon, starting 2023’s first trading session with an all too familiar 2022 pattern of volatile moves that trend downward amid worries about high inflation and a possible recession.

How are stocks are trading

The S&P 500
SPX,
-0.47%

dropped 28 points, or 0.7%, to 3,810.

The Dow Jones Industrial Average
DJIA,
-0.20%

lost 166 points, or 0.5%, to 32,973.

The Nasdaq Composite
COMP,
-4.72%

fell 112 points, or 1.1%, to 10,354.

On Friday, the Dow Jones Industrial Average fell 74 points, or 0.22%, to 33,147, the S&P 500 declined 10 points, or 0.25%, to 3,840, and the Nasdaq Composite dropped 12 points, or 0.11%, to 10,466. The Nasdaq Composite fell 33.1% in 2022. The yearly declines for the three stock indices were the worst since 2008.

What’s driving markets

After Wall Street’s S&P 500 benchmark dropped nearly 20% in 2022, equity investors appeared determined on Tuesday to start the new year of trading on a positive note. It started with a modest bang where all three indices opened higher at the session’s start, but that pop fizzled with three benchmarks trading lower in the early afternoon trade.

Tesla shares
TSLA,
-12.59%

led the market lower, falling more than 14% after the electric carmaker delivered fewer vehicles than expected last quarter despite offering hefty incentives in its biggest markets. It’s the third straight quarter that deliveries have missed estimates and several analysts cut price targets on the stock Tuesday.

Read also: Michael Burry of ‘Big Short’ fame expects another ‘inflation spike’ after recession rocks U.S.

There’s the investor excitement that’s going to come with the start of a new year and a new chance at gains and opportunities, said Scott Sheridan, CEO of tastyworks, an online brokerage. However, the underlying “structural issues” — like high inflation and the ongoing war in Ukraine — are still there, he said.

“I don’t think the market cares that it’s January 3rd. This is a continuation of the move we’ve been in, which is going to be a choppy move,” Sheridan said. For all new year goals of better-looking portfolio, Sheridan thinks the market “might not be ready for the bold move people are hoping for.”

Market consolidation is a “healthy response” ahead of whenever an upswing materializes, he said. The near term volatility could present “good trading opportunities,” but for longer term investors, there “might be some rough spots.”

Indeed, the International Monetary Fund greeted the new year with a warning that a third of the global economy will suffer recession in 2023, a downturn that will likely trim corporate profits.

“On a tactical basis, we are bearish, expecting investors to return from their New Years revelry in a sour mood,” said Marko Papic, chief strategist at the Clocktower Group. “Recession is yet to be priced in by the cyclical sectors and more downside may be ahead as the end-of-the-month FOMC meeting looms. However, we posit that the risk of a recession is overstated.”

See: ‘Recession is what everyone is betting on’: 2023’s first trading day begins

However, Julian Emanuel, strategist at Evercore ISI, reckoned that such concerns don’t necessarily mean stocks can’t rally.

“Forecasting an earnings recession in 2023 to accompany the economic recession that now seems inevitable, along with a 2023 year end S&P 500 price target of 4,150, would seem impossible,” he said in a note to clients.

“Yet not only is there a long history of earnings down/stocks up years (1970, 1982 and 1985 stand out, but there is also the tendency for strong stock/bond return years to follow historically forceful tightening cycles (1982, 1985) particularly in years (1995) following ‘havoc being wreaked’ on a 60/40 portfolio such as 2022’s declines.” Emanuel added.

Source: Evercore ISI

In addition, a burst of fresh strength in the U.S. dollar on Tuesday – a common reaction to global economic slowdown worries – was likely to further crimp earnings of U.S. multinationals. The ICE U.S. Dollar Index
DXY,
+1.01%
,
a gauge of the dollar’s strength against a basket of major currencies, rose 1.1% to 104.68.

Meanwhile, precious metals prices jumped in the first trading session of 2023. Gold prices due in February 
GCG23,
+1.00%

advanced to fresh 6-month highs on Tuesday, while March silver 
SIH23,
+0.54%

climbed to the highest since mid-April.

U.S. economic data on Tuesday included the December S&P U.S. manufacturing PMI, which showed a read of 46.2, down from 47.7 the prior month. The November construction spending was up 0.2% in November, following revised 0.2% loses in October. Analysts were expecting a 0.4% drop.

Later in the week there’s also Friday’s December jobs report, the final employment report the Fed will have to consider before its next meeting on Feb. 1.

Investors will be waiting for the release of the FOMC’s meeting minutes on Wednesday and a spate of economic data, including ISM Manufacturing PMI, job openings, and Friday’s December jobs report.

Companies in focus

Shares of AMC Entertainment Holdings, Inc. 
AMC,
-3.07%

fell 3.5% after its rival Cineworld Group PLC 
CNWGQ,

said Tuesday that neither the company nor its advisors are in talks with AMC regarding the sale of its cinema assets. AMC said last month that it held discussions regarding a potential strategic acquisition of theaters from the bankrupted Cineworld.

Linde PLC 
LIN,
-2.52%

stocks fell 3.2% after Reuters reported that Russia froze $488 million in the German industrial gas company’s assets.

Shares of Wynn Resorts, Limited
WYNN,
+3.13%

gained 2.1% with the help of an upgrade from Wells Fargo, which said it sees a significant reopening opportunity for the hotel and casino operator, citing China’s moves toward a full reopening.

— Jamie Chisholm contributed to this article

: Here’s what China’s economy faces going into 2023

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