NEW YORK: Wall Street stocks finished sharply lower on Wednesday (Jan 18), shedding early gains and pulling back after a heady start to the 2023 trading season.

Major indices had opened higher following US data showing a surprisingly big drop in December retail sales and a decline in wholesale prices.

The reports added to expectations of an upcoming pivot by the Federal Reserve (Fed) away from aggressive interest rate increases, boosting sentiment.

But stocks went negative soon after the open, adding to losses in the afternoon.

“It seems like we got a little overbought,” said Maris Ogg of Tower Bridge Advisors.

The Dow Jones Industrial Average fell 613.89 points, or 1.81%, to 33,296.96 and the S&P 500 lost 62.11 points, or 1.56%, to 3,928.86. The Nasdaq Composite dropped 138.10 points, or 1.24%, to 10,957.01.

Wednesday's decline was Nasdaq's first loss in eight sessions while the S&P and the Dow both saw their biggest daily percentage declines since Dec 15.

With Wall Street's major averages showing gains so far for 2023, Sam Stovall, chief investment strategist at CFRA research, said some investors saw weak data as an opportunity to take profits.

“The market was overbought. Today’s economic data served as a trigger to initiate a profit taking spell and the groups with most profits to take have been the ones that have done best last year,” he said.

A Fed report released on Wednesday also described lukewarm US economic activity in recent weeks.

Five of the Fed’s 12 districts saw “slight or modest” gains in activity while six reported either no changes or slight declines, said the report, which surveys firms and other contacts. One district saw a significant decline.

“Contacts generally expected little growth in the months ahead,” the report added.

Michael Reynolds, vice president of investment strategy at Glenmede, said: “It seems that investors are finally coming to the conclusion that getting inflation under control is not a free lunch and that all the tightening the Fed has had to do to get inflation moving in the right direction, comes with economic costs.

“Investors may have had this false belief that this soft landing scenario was a higher probability event than it actually is.”

Consumer staples stocks were among the hardest hit, with food giant Mondelez International losing 3.7%, Kraft Heinz down 6.3% and Coca-Cola shedding 3.0%.

Among individual companies, Microsoft fell 1.9% as it said it was laying off 10,000 employees in response to macroeconomic conditions.

IBM Corp shares were in the red after Morgan Stanley downgraded the company’s shares to “equal weight” from “overweight”. – AFP, Reuters