Stocks Drop On Fears The Fed Will Keep Tightening Into A Recession
2:39 pm Monday, December 05th, 2022
Things got off to a weaker start today after the big run we’ve had in recent weeks. Aside from a consolidation mindset on the heels of huge gains, one could point to the following catalysts for today’s selling:
A Wall Street Journal article from Nick Timiraos that suggests Fed officials could take the benchmark rate in 2023 higher than the 5.00% currently expected by the market due in part to “brisk wage growth.”
A stronger-than-expected ISM Non-Manufacturing Index for November (56.5% vs 54.4% prior) that bolstered the view that the Fed is apt to keep rates higher for longer.
An uptick in Treasury yields. The 2-yr note is up seven basis points to 4.36% and the 10-yr note is up seven basis points to 3.59%.
Some softness in several mega-cap stocks, but some acute weakness in Tesla (TSLA) even though it has refuted press reports that it is planning an output cut of at least 20% for the Model Y at its Shanghai plant in December.
Right out of the gate, the S&P 500 breached a key support level at its 200-day moving average (4,045). It remains under that key technical level, trading just off its session low.
U.S.-listed Chinese stocks are bucking the downtrend today after reports over the weekend that major cities in China have relaxed their COVID testing requirements for using public transportation and buying certain medicines. Baidu (BIDU) and Pinduoduo (PDD) are among the biggest winners for the group.
Energy complex futures are suffering decent sized losses today even though OPEC+ agreed to maintain its production cut target of 2 million barrels per day from November until the end of 2023. Separately, the EU and its allies agreed to a $60.00 per barrel price cap on Russian oil. WTI crude oil futures are down 2.3% to $78.11/bbl and natural gas futures are down 10.1% to $5.64/mmbtu.
Energy and other cyclical sectors are among today’s weakest performers, which presumably reflects the market’s concerns that the Fed will overtighten and trigger a deeper economic setback.
