Dow falls 200 points on fears the Fed will overtighten

Stocks fell Thursday as investors grew increasingly concerned the Federal Reserve will keep raising rates despite signs of slowing inflation.

The Dow Jones Industrial Average lost 251 points, or 0.8%, erasing its January gains. The S&P 500 and Nasdaq Composite shed 0.8% and 1.1%, respectively, and were still hanging on to their monthly gains.

All of the major averages are on pace for a negative week. The Dow is down 3.5%, while the S&P and Nasdaq have each lost more than 2% on a weekly basis.

Stocks extended their slide on Thursday after initial filings for unemployment insurance fell to their lowest level since late June last week, the Labor Department reported Thursday, signaling to investors that the labor market is resilient amid a slowing economy.

“Despite all the big-tech post-pandemic layoffs, the jobs market remains hot,” said Ed Moya, senior market analyst with Oanda. “The labor market needs to break to allow the Fed to comfortably keep rates on hold.”

Claims totaled a seasonally adjusted 190,000 for the week ending Jan. 14, a decline of 15,000 the previous period. Economists surveyed by Dow Jones had been looking for 215,000.

Investors have also been parsing through the latest data and Fed remarks for clues on how high rates will go. But, while recent numbers point to easing inflation, JPMorgan Chase CEO Jamie Dimon thinks rates will top 5%.

“I think there’s a lot of underlying inflation, which won’t go away so quick,” Dimon told CNBC’s “Squawk Box” from the World Economic Forum in Davos, Switzerland.

Wall Street is coming off a losing session. The S&P 500 tumbled 1.56% on Wednesday for its worst day since Dec. 15. The Dow shed more than 613 points, or 1.81%. The tech-heavy Nasdaq Composite fell 1.24%, snapping seven-straight days of gains. Bank stocks such as JPMorgan, Bank of America and Wells Fargo slid, weighing on the broader market.

Disappointing retail sales and a weaker-than-expected producer price index reading ignited recession fears, sending stocks lower Wednesday.

Elsewhere, investors are watching key quarterly reports to see if there is an earnings recession brewing. Netflix will report earnings after the bell.