(AP) -- Stocks are losing ground again on Wall Street in afternoon trading Thursday as worries build that the U.S. may be headed for a painful recession.
The S&P 500 fell 0.4% as of 1:48 p.m. Eastern, on pace for its third straight drop. The Dow Jones Industrial Average fell 134 points, or 0.4%, to 33,162 and the Nasdaq composite was off 0.6%.
Every major index is on track for a weekly loss after the market kicked off the year with a two-week rally. Bond yields were steady, but have been moving broadly lower since the beginning of the year. Analysts expect the broader market to remain unsteady as investors try to get a clearer picture of inflation and the economy's path ahead.
"It's very reflective of the conflicting views that investors have with respect to where things are headed here in early 2023," said Greg Bassuk, CEO at AXS Investments.
Reports showed weakness in several areas of the economy, including the housing industry and manufacturing in the mid-Atlantic region, though they weren't quite as bad as expected and the job market appears to remain healthy. They follow worse-than-expected readings a day earlier on retail sales, a cornerstone of the economy, and industrial production.
The latest economic data paint a picture of an economy slowing under the weight of last year's blizzard of rate hikes by the Federal Reserve. The central bank aggressively raised interest rates to purposely slow the economy and cool inflation. The strategy risks hitting the brakes too hard on economic growth and causing a recession.
Several major banks are forecasting at least a mild recession this year as the impact from the Fed's rate increases reverberates through the economy. Inflation has been cooling, but prices are still stubbornly high on many items, squeezing consumers.
The central bank has raised its key overnight rate to a range of 4.25% to 4.50% from roughly zero a year ago. The Fed will announce its next decision on interest rates Feb. 1. Investors are largely forecasting a raise of just 0.25 percentage points next month, down from December's half-point hike and from four prior increases of 0.75 percentage points.
The Fed has maintained that it won't ease off its fight against inflation until it is sure that prices are cooling. It has also been closely watching several areas of the economy, including the labor market, to get a better sense of whether inflation is slowing. The latest weekly unemployment data shows that employment remains strong, which is good for workers but makes the Fed's fight against inflation more difficult.
The yield on the two-year Treasury, which tracks expectations for future Fed action, rose to 4.11% from 4.09% late Wednesday. The 10-year Treasury yield, which influences interest rates on mortgages and other loans, rose to 3.41% from 3.38%.
Roughly 70% of the stocks in the S&P 500 were in the red in afternoon trading. Technology companies, retailers and industrial stocks were among the biggest drags on the benchmark index. Chipmaker Nvidia fell 2.6%, Home Depot dropped 3% and Deere & Co. slid 3.4%.
Wall Street is also closely reviewing the latest round of corporate earnings to get a clearer picture of how companies are dealing with inflation and a slowing economy. Credit card issuer Discover Financial fell 1.2% after it forecast an increase in net charge-offs in 2023. Adhesives company H.B. Fuller shed 1.7% after reporting weak financial results.
Investors are also monitoring political developments that could eventually hurt the economy. The Treasury Department says it has started taking "extraordinary measures" as the government has run up against its legal borrowing capacity. Treasury Secretary Janet Yellen sent a letter to congressional leaders Thursday urging them to act to raise the debt limit. The government can temporarily rely on accounting tweaks to stay open.
European markets fell and Asian markets ended mixed.