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Stocks fall sharply, Dow drops more than 600 points ahead of pivotal inflation data

Stocks fell on Thursday as investors monitored the health of the economy ahead of a key inflation report.

The Dow Jones Industrial Average fell 378 points, or 1.2%. The S&P 500 dipped nearly 1.5%, and the Nasdaq Composite shed 1.9%.

Casino stocks were some of the worst performers in the S&P 500, with Las Vegas Sands falling 4.5% and Caesars Entertainment sliding 2.9%. Chinese tech stocks reversed recent gains and dragged on the Nasdaq, with Pinduoduo sinking more than 10.3%.

Some major tech stocks also struggled, with Meta Platforms sliding nearly 4% and Amazon dropping 2.3%.

Investors have been assessing the health of the U.S. economy, with a key inflation report due out on Friday. The Federal Reserve has started hiking rates in an attempt to cool inflation without tipping the economy into recession.

Higher energy prices and continued supply chain disruptions have kept inflation persistently high in recent months, while some economic data has shown slowing growth in recent weeks.

“There’s a lot of headfakes going on. And unfortunately we’re not going to get a lot of clean looks at the economy, whether the U.S. economy or certainly the global economy, for quite some time because there’s just so many things that are hard to decipher,” said Michael Skordeles, senior U.S. macro strategist at Truist.

Oil prices dipped slightly on Thursday, but U.S. West Texas Intermediate crude still held above $120 per barrel. Initial jobless claims rose to 229,000 last week, worse than the 210,000 expected.

On the positive side, Tesla rose more than 1% after UBS upgraded the stock to buy. The firm also said the electric vehicle maker can rally more than 50% from current levels.

The S&P 500 is now down about 15% from its record high, but has traded sideways in recent weeks after bouncing off its recent low in May.

Andrew Slimmon, senior portfolio manager at Morgan Stanley Investment Management, said he thinks stocks will finish the year higher from here but could be in for a bumpy ride over the summer, with that May low a key area to watch.

“Maybe we retest that, but I don’t see a substantial decline below that because it is my belief that, despite higher oil prices and higher food prices … the economy will be able to withstand the shock that we’re facing now,” Slimmon said.

Stocks appeared to move opposite bond yields on Thursday, which were volatile after an update from the European Central Bank. The ECB confirmed its plan to hike interest rates in July and possibly again in September. The ECB also raised its inflation projection for 2022 to 6.8%, up from 5.1% previously, and lowered its growth outlook.

Elsewhere, shares of Target were little changed after the company announced a dividend hike. The payout raise comes after a disappointing first quarter and a profit warning for the second quarter from the retail giant.

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