Dow slides 500 points Friday, bringing 3-day losses to more than 4%

Stocks accelerated losses in midday trading, with the Dow Jones Industrial Average falling 535 points, or 1.6%. The S&P 500 fell 1.7%, and the tech-heavy Nasdaq Composite declined about 1.5%.

— Sarah Min

AQR Capital Management’s Absolute Return Strategy has climbed 40.9% this year through November, on track to post its best year ever since the quant strategy was launched in 1998, according to a person familiar with the return.

Cliff Asness’ favored investing styles, including value and trend following, made a big comeback during the volatile year. Bloomberg News first reported on AQR’s returns Friday.

— Yun Li

San Francisco Federal Reserve President Mary Daly said Friday she sees the recent inflation news as welcome, but it’s not enough to change her view on where policy needs to go.

The October and November readings for the consumer price index amounted to “good news,” but “we don’t see anything right now but hope in the inflation data, and I get confidence in evidence, not hope. So I’m hopeful we’re on a good truck, but I won’t be confident until I see repeated evidence that inflation is truly back on a path for 2% in the coming years,” Daly said in a conversation hosted by the American Enterprise Institute.

“We are far away from our price stability goal,” she added.

Earlier this week, the Fed raised its benchmark borrowing rate by half a percentage point, the seventh hike of the year that took the funds level to a target range of 4.25%-5%.

Daly, a nonvoter this year on the rate-setting Federal Open Market Committee, said her own expectations of where rates are headed is probably higher than current market pricing. Daly votes again in 2024.

—Jeff Cox

Goldman Sachs plans on laying off up to 8% of its employees as it girds for a tougher environment next year, according to a person with knowledge of the situation.

The job cuts will impact every division of the bank and will likely happen in January, according to the person, who declined to be identified speaking about personnel decisions.

That’s ahead of an upcoming conference for Goldman shareholders in which management is expected to present performance targets.

Wall Street is adjusting to a lower revenue environment this year after a two-year boom in deals and hiring sputtered out. Goldman was the first major firm to cut jobs in September, a relatively shallow culling that only impacted a few hundred employees. That was followed by similarly modest cuts at Citigroup and Barclays, though Morgan Stanley cut about 1600 workers last week.

—Hugh Son

Pharmaceutical stock Eli Lilly could be a big growth winner in 2023, according to JPMorgan.

Analyst Chris Schott named the stock one of the Wall Street firm’s favored biopharmaceutical picks heading into the new year, calling Eli Lilly a “best-in-class growth story” with solid margin expansion opportunities driven in part by its Mounjaro diabetes drug.

“We are Overweight LLY given its best in class pharma growth profile and margin expansion opportunity, partially offset by rich valuation,” he said in a note to clients Friday.

The pharma stock should also benefit from growth from its Verzenio and Taltz medications, respectively treating metastatic breast cancer and a form of psoriasis.

“We also forecast robust margin expansion through the rest of the decade as LLY leverages
its existing infrastructure to support its new product growth,” Schott wrote. “We see the valuation premium as more than justified by Lilly’s significantly higher top- and bottom-line growth relative to peers as well as the company’s pipeline optionality.

Eli Lilly’s shares are up about 29% this year and were slightly lower Friday. JPMorgan’s $400 price target suggests the stock has more room to run, offering an 11% potential upside from Thursday’s close,

— Samantha Subin

The semiconductor space, which has taken a beating this year, could have a volatile start next year, according to Bank of America. However, continued estimate cuts and a potential shift in focus to a rebound in the last half of 2023 and 2024 could help drive outperformance, analyst Vivek Arya wrote in a note Friday.

One of his top picks is Nvidia, where estimates for 2023 have already been marked down from peaks, Arya said.

“Spending AI, high-speed electro-optics and 5G could be lumpy but still mission critical for global cloud customers,” he said.

Shares of Nvidia are down about 43% year to date.

— Michelle Fox

Plans from the Federal Reserve to continue hiking rates into next year heighten the odds of a very difficult downturn ahead, according to Jeremy Siegel, professor of finance at the University of Pennsylvania’s Wharton School of Business.

“I think the Fed is making a terrible mistake,” he told CNBC’s “Squawk on the Street” on Friday. “Their plan, their dot plot, is way too tight. Inflation is basically over, despite the way Chairman [Jerome] Powell characterizes it.”

According to Siegel, the central bank should refrain from hiking further, or keeping rates elevated next year.

“Talk of going higher and staying high in 2023, I think would guarantee a very steep recession,” he said.

— Samantha Subin

All sectors in the S&P 500 were posting losses Friday morning, with real estate, utilities and energy the biggest laggards in the broader market index.

Real estate was down more than 3%, while the utilities and energy sectors were off by more than 2%. Meanwhile, the S&P 500 was down 1.3%.

Communication services outperformed the other sectors, but was also off by 0.3%.

— Sarah Min

The sell-off was broad-based on Wall Street, with only 15 names in the S&P 500 trading in positive territory during morning trading.

Adobe and Meta were the top gainers in the broader market index.

Shares of Adobe rose 4% after the design software firm posted fiscal fourth-quarter earnings and guidance that topped expectations.

Shares of Meta rose more than 3% after JPMorgan upgraded shares of the social media company to overweight from neutral.

Adobe is down nearly 40% in 2022, while Meta is off by 64%.

— Sarah Min

Goldman Sachs resumed coverage of Delta Air Lines with a buy rating and a price target implying 20% upside. The air carrier is best in the industry, according to the firm.

“DAL shares have performed at the better end of our US Airlines coverage universe this year, buoyed by improvements in international and corporate travel in addition to its relatively stronger balance sheet in light of rising rates,” wrote analyst Catherine O’Brien in a Dec. 16 note.

CNBC Pro subscribers can read more here.

—Carmen Reinicke

Now is the time to snap up shares of Meta at a discount, according to JPMorgan.

The firm upgraded shares of the social media company to overweight from neutral and boosted its price target to $150 from $115 in a Dec. 16 note. That implies a nearly 30% upside from Thursday’s close.

“Meta has been impacted by Apple privacy changes, TikTok competition, Reels headwinds, heavy hiring & expense growth, an uncertain build-out of the metaverse, and macro pressures,” wrote analyst Doug Anmuth, adding that Meta has shed 65% this year, much worse than the broader market.

CNBC PRO subscribers can read more here

—Carmen Reinicke

Stocks were lower Friday morning as investors continued to sell into year-end on fears a recession is ahead next year because of the Federal Reserve’s unrelenting rate hiking.

The Dow Jones Industrial Average lost 217 points, or 0.65%. The S&P 500 lost 0.6%, while the Nasdaq Composite fell 0.28%.

— Sarah Min

Brokerage firm Charles Schwab is the best way to gain exposure to the asset management space in what could be a rocky 2023 for markets, according to Deutsche Bank.

Analyst Brian Bedell named Schwab its top pick in the industry, saying that investors could rely on the company for strong earnings.

“Overall, amid what we think may be a very volatile year in markets that could end with a strong rebound, we have the highest conviction on the earnings growth outlook for stock price appreciation for Charles Schwab (SCHW-Buy) followed by the alternative asset managers,” Bedell said.

In particular, Deutsche Bank expects Schwab’s net interest margin to expand next year even if the Fed cuts rates later in 2023.

Deutsche Bank also downgraded Invesco to hold from buy.

— Jesse Pound

Investors can expect further downside into the year end, according to Wolfe Research.

The S&P 500 posted a fresh 21-day low on Thursday, confirming that the recent stock gains were “nothing more than another bear market rally,” the firm’s Rob Ginsberg wrote in a Thursday note.

“As we have discussed over the past few weeks, everyone – both bulls and bears alike, had been looking for upside into yearend,” Ginsberg said.

“As we always say – ‘markets have a very painful way of not rewarding the consensus’ and Tuesday’s violent reversal coupled with today’s fresh 1-month low leaves us looking for healthy downside into yearend,” Ginsberg added.

— Sarah Min

Check out the companies making headlines before the bell:

• Accenture (ACN) – The consulting firm’s shares fell 1.5% in the premarket despite beating estimates on the top and bottom lines for its latest quarter. Accenture issued a revenue range for the current quarter whose midpoint is below current consensus and said the stronger U.S. dollar will impact its fiscal 2023 results by 5%.
• Darden Restaurants (DRI) – The parent of Olive Garden and other restaurant chains reported better-than-expected profit and revenue for its latest quarter, and exceeded analyst forecasts for same-restaurant sales. Darden also raised the lower end of its 2023 earnings guidance range. Its stock rose 1% in premarket trading.
• Winnebago Industries (WGO) – Winnebago’s quarterly results beat top and bottom line estimates, although profits declined from a year ago due to the impact of inflation and supply disruptions. The recreational vehicle maker’s shares fell 1.5% in premarket action.

Read the full list here.

— Peter Schacknow

Amid a difficult first half of 2023, retail companies that play in growing trends like outdoor activity, the trade down to lower cost but quality items or provide a high-end quality product should do well, according to Canaccord Genuity.

One winner is Yeti Holdings, which will likely guide 2023 below consensus thanks to its conservative management team, analyst Susan Anderson wrote in a note Thursday. She rates the stock a buy and has a $58 price target, implying nearly 35% upside from Thursday’s close.

“We believe the core YETI consumer should hold up relatively better in a recession as it skews a bit higher end,” Anderson said.

She also likes Traeger and believes material growth for the grill industry will resume in the second half of 2023. She has a buy rating on the stock and a $6 price target, implying 102% upside from Thursday’s close.

“After industry leader WEBR agreed to be taken private earlier this week, we believe COOK’s three largest shareholders could consider a take-private deal of their own,” Anderson wrote.

— Michelle Fox

Needham’s Laura Martin cut her 2023 estimates for the Walt Disney Company, while retaining a hold rating on the beleaguered stock.

The analyst lowered her expectations for the first quarter of 2023 for the company, which includes the month of December, citing pressure from the “Avatar: The Way of Water” movie. Disney ended its most recent fiscal year in October 1, 2022.

“Much of the profit pressure in the Dec quarter came from the large marketing budget to launch Avatar, The Way of Water whereas revenue only began on the Dec 16th release date,” she wrote.

Martin trimmed revenue expectations to $15.4 billion in the first quarter of 2023, which is 3% below her previous forecast. She expects operating income of $2.7 billion, which is down 17% year over year and 13% below her previous estimate. Meanwhile, she projects adjusted earnings per share of $1.18, up 11% year over year, and 2% below her previous forecast.

She also slightly lowered full year 2023 estimates to revenues of $92 billion, down 0.5% from her prior forecast. Operating income expectations were trimmed 6% to $13.3 billion. Adjusted earnings per share expectations declined 0.4% to $4.97.

Shares of Disney are down more than 41% in 2022, as investors worry about the outlook for the entertainment company ahead of a possible recession next year.

— Sarah Min

Shares of Darden Restaurants rose more than 1% in premarket trading Friday after topping estimates on the top and bottom lines in its most recent earnings report.

The restaurant company behind Olive Garden and LongHorn Steakhouse reported earnings of $1.52 per share on revenue of $2.49 billion. Analysts polled by Refinitiv were forecasting earnings of $1.44 per share on revenue of $2.43 billion.

— Sarah Min

Shares of Chinese technology companies listed on mainland exchanges fell in Asia trade after the U.S. government announced a list of companies that will face restrictions over their efforts to help modernize China’s military.

Chinese artificial intelligence developer Cambricon Technologies’ shares listed in Shanghai fell more than 4% in Asia’s afternoon session after falling 6% in the morning.

China Electronics Technology Group also fell more than 2%.

Shenzhen-listed shares of Hangzhou Hikvision, the world’s largest surveillance camera maker, fell 0.7%.

Meanwhile, WuXi Biologics, a company that manufactures ingredients for the AstraZeneca Covid vaccine, was removed from the list. Hong Kong-listed shares of the company rose more than 5% in Asia’s afternoon.

— Jihye Lee

UBS upgraded its outlook for China’s 2023 gross domestic product to 4.9%, versus 4.5% previously, according to its chief China economist Wang Tao, citing an earlier and faster reopening in the nation.

Wang said the firm expects a weaker fourth-quarter GDP for 2022, downgrading its full-year forecast to 2.7% from 3.1%, pointing out November’s weakened growth with a recent surge in Covid cases.

The firm added that the Central Economic Work Conference will likely prioritize stabilizing growth as well as supportive macro policies for the upcoming year.

“We expect fiscal policy to stay proactive with small increase of headline deficit and new special LG [local government] bonds, monetary and credit policy to keep supportive with continued ample liquidity but unlikely any additional policy rate cut,” Wang said in the note.

— Jihye Lee

Some of the biggest owners of U.S. government debt have pared back their holdings substantially, the Treasury Department reported Thursday.

Japan, China and the United Kingdom reduced their collective Treasury holdings by $91 billion in October as yields rose and investors worried about inflation. The Federal Reserve has been raising interest rates, and those increases have fed through to the Treasury market.

In all, major foreign holders of U.S. debt cut their portfolios by $110.6 billion for the month. Over the 12-month period from October 2021, the total fell by $475.3 billion, a 6.2% decrease. U.S. government debt increased during the period by $2.33 trillion, or just over 8%.

China in particular has been slicing its Treasury exposure, decreasing holdings by $155.8 billion, or 14.6% during the 12-month span.

The benchmark 10-year Treasury yield soared in that time, rising from around 1.48% on Oct. 1, 2021, to 4.1% by Oct. 31, 2022. Yields move opposite prices, meaning big jumps in yields eat into capital value of bondholders.

—Jeff Cox

Adobe gained 5% in extended trading after the company offered a strong outlook when reporting earnings.

The company came in above analyst expectations for fourth-quarter earnings, according to Refinitiv. Revenue was in line with expectations for the quarter.

Adobe gave an optimistic outlook for the first quarter and full year at a time when many companies are reining in expectations.

For the first quarter, Adobe expects to earn $3.65 to $3.70 per share after adjustments on revenue of $4.60 billion to $4.64 billion. Analysts polled by Refinitiv had expected $3.64 in adjusted earnings per share and $4.64 billion in revenue.

The company also reaffirmed its full-year guidance for both measures.

— Alex Harring

Stock futures opened lower as investors came off a second day of selling off.

Futures tied to the Dow lost 40 points or 0.1%.

S&P 500 and Nasdaq 100 futures both shed 0.1%.

— Alex Harring