About 98% of S&P 500 stocks decline

The sell-off in US stocks deepened as investors were confronted with data that validates the Federal Reserve’s claim that the economy is strong enough to withstand further tightening.

The S&P 500 fell more than 2%, with about 98% of its stocks in decline. The tech-heavy Nasdaq 100 fell as much as 3.7%. A gloomy outlook for chipmaker Micron Technology Inc. hit its shares and weighed on both indices. The company’s warning countered some of the optimism fueled Wednesday by data showing US consumer confidence at an eight-month high and a further dip in inflation expectations.

CarMax Inc. also fell after reporting earnings that fell short of already depressed expectations, deepening concerns about the weakening US used-car market. The dollar won.

New US data on Thursday pointed to a resilient economy, raising concerns that the Fed has a longer road to correct price growth. Initial jobless claims rose less than expected in the week ending December 17, underscoring the strength of the labor market. Third-quarter gross domestic product was revised to 3.2%, compared with a previously reported advance of 2.9%, due to firmer spending.

“It’s a bit interesting to see markets move on a third GDP release. We’ve gotten this data a couple of times already, it was pretty big revisions,” Veronica Clark, an economist at Citigroup Inc., said on Bloomberg Television. “Markets expect to see softer inflation now and we’re not getting it.”

Bearish comments from investor David Tepper, who told CNBC he is “shorting” on US stocks next year due to global tightening, added to risk-off sentiment on Thursday.

The big drop in the S&P 500 this month contrasts with an average gain of 1.5% in December since 1950, giving marginalized global investors plenty of “dry powder” to put to work, according to SEB analysts.

Meanwhile, concerns are growing that Japanese investors may be persuaded to bring home some of the trillions of dollars they have hidden in foreign stocks and bonds as yields on local bonds and the yen rise in the wake of the this week’s aggressive turn from the Bank of Japan. That could further drive up global borrowing costs and drag down already cooling economic growth, with euro zone bonds seen as especially vulnerable.