Traders work on the floor of the NYSE in New York
Traders work at the post where Carvana Co. is traded on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., December 7, 2022. Reuters

U.S. stock indexes fell on Thursday as worries about a looming recession crept into the foreground of the earnings season, while shares of Procter & Gamble fell after the company warned of cost pressures.

Fears of the Federal Reserve's sharp interest rate hikes slowing the economy were fanned by weak retail sales and manufacturing data on Wednesday, with the S&P 500 and the Dow logging their biggest daily percentage declines in over a month.

The challenging economic environment has dealt a blow to corporate America, with companies such as Microsoft Corp and Amazon.com Inc announcing plans to cut thousands of jobs.

Both the megacap firms were among the top drags to the benchmark S&P 500 on Thursday.

Retailers and consumer discretionary stocks were among the leading decliners on the S&P 500, down 1.1% and 0.9%, respectively.

Weighing on the Dow, American Express Co, the only major U.S. card company with credit exposure and highly sensitive to rate hikes, fell 3.7%.

Procter & Gamble Co fell 1% after warning of commodity costs pressuring profits, despite raising its full-year sales forecast.

With the quarterly reporting season underway, analysts noted that earnings estimates could decline even further as risks of a potential recession increase.

"The earnings picture is also looking weak and pointing to a recession," Sam Stovall, chief investment strategist at CFRA Research, said.

"Expectations are that earnings will fall in the fourth quarter of 2022 as well as the first two quarters of 2023."

Analysts now expect year-over-year earnings from S&P 500 companies to decline 2.8% for the fourth quarter, according to Refinitiv data, compared with a 1.6% decline in the beginning of the year.

Data on Thursday showed a surprise fall in U.S. weekly jobless claims, suggesting the labor market remained tight. A separate survey of goods producers showed manufacturing activity in the mid-Atlantic region softened again in January.

Meanwhile, comments from Federal Reserve officials continue to highlight the disparity between the central bank's estimate of its terminal rate and market expectations, with Boston Fed President Susan Collins being the latest policymaker to back the case for interest rates to rise beyond 5%.

Money market participants, on the other hand expect the terminal rate at 4.89% by June and have priced in a 25-basis point rate hike from the Fed in February..

At 9:56 a.m. ET, the Dow Jones Industrial Average was down 206.48 points, or 0.62%, at 33,090.48, the S&P 500 was down 26.08 points, or 0.66%, at 3,902.78, and the Nasdaq Composite was down 89.55 points, or 0.82%, at 10,867.47.

Netflix Inc is expected to report its slowest quarterly revenue growth later on Thursday. The company's shares fell 2.6%.

Declining issues outnumbered advancers for a 2.86-to-1 ratio on the NYSE and a 2.58-to-1 ratio on the Nasdaq.

The S&P index recorded no new 52-week high and two new lows, while the Nasdaq recorded 17 new highs and 13 new lows.