All three major U.S. stock indexes finished lower Monday, posting their largest one-day point drops in a week, as investors remained focused on the release of fresh inflation data and third-quarter earnings this week.
Video: Stagflation ‘worst of all worlds’ -strategist (Reuters)
The Treasury market was closed in observance of the Columbus Day holiday, but other markets remained open as usual. Wednesday’s U.S. consumer-price report for September is the next major data release in the week ahead.
- The Dow Jones Industrial Average fell 250.19 points, or 0.7%, to end at 34,496.06
- The S&P 500 dropped 30.15 points, or 0.7%, to close at 4,361.19.
- The Nasdaq Composite shed 93.34 points, or 0.6%, finishing at 14,486.20.
Stocks wobbled on Friday, but logged weekly gains. The Dow advanced 1.2% last week, while the S&P 500 rose 0.8% and the Nasdaq Composite eked out a 0.1% rise.
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What drove the market?
The path of least resistance was initially higher to start the week of trading, but all three major indexes turned lower on the day after the early rally faded on lingering negative sentiment among investors.
“What you saw at the open was really a head fake because futures were negative all morning,” said Matthew Tuttle, chief executive and chief investment officer of Tuttle Capital Management in Greenwich, Connecticut. “Buyers came in and tried to rally the market and that failed miserably.”
“Sentiment is fairly negative,” he said by phone. In addition to the prospect of the Fed tapering bond purchases and then raising rates down the road, “there are a whole bunch of inflation numbers this week and people aren’t expecting that to be good news in any way, shape or form.” Moreover, the S&P 500 is below its 50-day moving average and “if you’re trying to sit out there and be a buyer, there’s not a whole lot to grab onto.”
Analysts have expressed concern that supply-chain issues that have spread throughout the global economy will compress profit margins, and that inflation will limit consumer demand. Investors are awaiting Wednesday’s consumer-price index report for September — which could reflect record gas prices, higher shipping rates, and supply constraints —to determine how much longer price pressures might persist.
The yield on the benchmark 10-year Treasury rose 14 basis points last week to 1.60%, the biggest weekly gain since Feb. 19. The rise in yields for bonds suggest that, at least, fixed-income investors are anticipating that the Fed will reduce its monthly purchases of $120 billion in Treasurys and mortgage-backed securities.
“Friday’s U.S. employment report was sufficiently mixed to revive the debate over whether the Fed will really go ahead with the planned tapering next month. Despite the headline miss, the underlying numbers should just about meet Chair [Jerome] Powell’s requirement of ‘decent’ and ensure that the existing schedule remains intact,” said Ian Williams, strategist at U.K. broker Peel Hunt.
He added that the third-quarter earnings season will be even more crucial in supporting valuations as yields rise. Major U.S. banks including JPMorgan Chase Bank of America and Citigroup are due to report results this week.
On the public-health side, Merck & Co. submitted an application to the U.S. Food and Drug Administration for emergency authorization of what would be the first pill-based treatment for the deadly illness after the company said data from a Phase 3 trial of the treatment, molnupiravir, the oral antiviral medicine, reduced the risk of hospitalization or death in adults at risk from severe COVID-19 by 50%.
“Markets remain over-valued and due for a substantial correction,” said Phillip Toews, chief executive of Toews Asset Management. “You need to be implementing risk management steps now, before a big decline potentially plays out. Remember that investing is counterintuitive. The need to act is the greatest when the economy seems fine and all seems on a path to a future rally.”
Which companies were in focus? Shares of Southwest Airlines Co. rose 0.3% on Monday, even after the airline canceled hundreds of flights over the weekend, a move it blamed on weather and air-traffic control issues.
- Domino’s Pizza Inc. announced the launch of Oven-Baked Dips on Monday, a side that’s meant to be eaten with the company’s Bread Twists. Shares rose less than 0.1%
- Starbucks Corp. shares rose almost 1%. It was upgraded to buy from hold at Deutsche Bank, with analysts anticipating growth in China for a long time to come.
- KKR & Co. Inc. KKR on Monday named Joe Bae and Scott Nuttall as co-CEOs of the 45-year-old private-equity firm, effective immediately. Founders Henry Kravis and George Roberts will remain involved with the firm as executive co-chairmen. Its shares fell 1.3%
- Exxon Mobil XOM said Monday it will build its first large-scale plastic waste recycling facility in Baytown, Texas, to go into operation at the end of 2022. Its shares were unchanged.
- The ICE U.S. Dollar Index a measure of the currency against a basket of six major rivals, rose 0.3%.
- Oil futures continued to surge, with the U.S. benchmark settling above $80 a barrel for the first time since 2014. Gold futures lost 0.1% to settle at $1,755.70 per ounce.
- The Stoxx Europe 600 closed less than 0.1% higher, while London’s FTSE 100 finished 0.7% higher.
- The Shanghai Composite ended fractionally lower, while the Hang Seng Index rose 2% in Hong Kong and Japan’s Nikkei 225 gained 1.6%.
How did other markets fare?
Steven Goldstein contributed reporting to this article.