Wall Street posts losing week even after good jobs, inflation data

MANHATTAN (CN) — Investors took a step back this week as worries of artificial intelligence’s effect on several sectors took their toll, which eclipsed positive jobs and inflation data.

Investors rotated out of transportation and commercial real estate stocks this week, fearing AI could hurt those sectors, causing the Dow Jones Industrial Average to lose 615 points for the week, the S&P 500 96 points, and the Nasdaq 485 points.

“Although much has been made about whether or not the Fed can keep cutting interest rates this year, markets seem to care much more about the possibilities of AI disruption across a broad swatch of industries right now,” said Chris Zaccarelli, chief investment officer for Northlight Asset Management.

Even positive inflation data did not help investors regain all the lost ground, wity Friday’s consumer price index showing showed a 0.2% increase in prices versus 0.3% expected. Yearly inflation rose 2.4% compared with the forecast 2.5% year-over-year increase.

Notable details in the report include a 7.5% yearly drop in gasoline prices and a 6.3% annualized increase in electricity prices. Other sectors saw disparate inflation: used vehicle prices fell 1.8% last month, but transportation services gained 1.4%.

Earlier in the week, investors were at first happy and then apprehensive about the latest jobs report, which surprisingly showed the U.S. economy added 130,000 jobs last month and unemployment dipped down to 4.3%. The report also included a downward revision of 862,000 jobs from last year’s numbers.

Investors initially were pleased by the data, but then they realized a stabilizing employment landscape meant the Federal Reserve likely wouldn’t see it as an impetus to cut interest rates.

“While we think the report may overstate any emerging strength in the labor market, we do think conditions have stabilized enough to keep the Fed on hold until June,” Nancy Vanden Houten, lead U.S. economist at Oxford Economics, wrote in an investor’s note.

Additionally, the retail sales report from the U.S. Census Bureau — which, like the jobs report, was delayed due to the partial government shutdown — was a splash of cold water for investors, showing chilly holiday sales, while November’s retail sales report also was revised lower.

The latest report, which posted zero gain in sales in December compared with the 0.4% increase most economists forecast, was negative in nearly all aspects: core sales flattened, gasoline store sales dropped significantly, and furniture sales also fell.

“For months consumer confidence numbers have been disappointing and consumers have been complaining about the cost of everything, and yet they kept spending,” Zaccarelli said. “However, this month’s data show that consumers are no longer relentlessly increasing their level of spending.”

Optimism dropped again among small businesses, according to the National Federation of Independent Business’s latest survey, while uncertainty increased once again. However, small companies seem more optimistic about expected real sales volume, the survey found, despite data showing retail sales suffering.

“While GDP is rising, small businesses are still waiting for noticeable economic growth,” NFIB chief economist Bill Dunkelberg said in a statement. “Despite this, more owners are reporting better business health and anticipating higher sales.”

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