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Stocks slump as positive economic data give Fed more room to run

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U.S. equities slid for a third straight week in a choppy run of trading driven by hotter-than-expected economic figures and concerns the Federal Reserve will stay aggressive.

The S&P 500 index dipped 0.2 percent to 3,845 in the week. The Nasdaq fell 1.9 percent in the five-day period while the Dow Jones industrial average rose 0.9 percent.

A spate of economic reports whipsawed markets as traders tried to parse data and guess the Fed’s next move. The week began with a shocking decision by the Bank of Japan to allow long-term yields to rise more. Considered the last holdout to rock-bottom interest rates, the Japanese central bank’s move caused the U.S. benchmark 10-year yield to jump the most since October.

Then, U.S. gross domestic product for the third quarter was revised upward to 3.2 percent from an annualized rate of 2.9 percent, underscoring strength in consumer spending and business investment. Personal consumption data was revised significantly higher, advancing 2.3 percent in the latest report compared with 1.7 percent in an earlier estimate.

“A clutch of economic data including a surprisingly solid GDP report, lower than expected continuing claims, and personal consumption data that suggest a still resilient consumer, coupled with higher expectations, had the market veer instantly into the ‘good news is bad news’ scenario,” said Quincy Krosby, chief global strategist for LPL Financial.

The Fed’s preferred inflation gauges cooled in November, including a headline annual measure that registered the smallest increase in over a year. Reflecting easing price pressures was Friday’s consumer sentiment reading, which showed that year-ahead inflation expectations dropped this month to the lowest since June 2021.

Nike and FedEx posted earnings that came in better than Wall Street forecasts, but the earnings optimism was cut short by Micron Technology. The chipmaker said the worst memory chip glut in more than a decade will make it difficult to return to profitability in 2023. The company also said it will cut 10 percent of its workforce next year.

Fresh off losing his title as the world’s richest person, Elon Musk announced that he would resign as head of Twitter as soon as a successor is found. Another Musk company, Tesla, has lost about $226 billion of market value just this month as of Friday’s close.

Markets will be closed Monday in observance of the Christmas holiday.

The Treasury will sell 13- and 26-week bills Tuesday. They yielded 4.382 percent and 4.706 percent in when-issued trading, respectively. Some $42 billion of two-year notes will be offered the same day. The government will auction $43 billion of five-year notes Dec. 28, as well as $35 billion of seven-year notes and four- and eight-week bills the following day.

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