Stocks Falter as Chipmakers Plunge and Automakers Slide

What you need to know…

The S&P 500 Index ($SPX) (SPY) on Monday closed down -0.75%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -0.32%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -1.02%.

Stocks on Monday posted moderate losses, with the S&P 500 and Dow Jones Industrials falling to 1-week lows and the Nasdaq 100 dropping to a 2-year low.  Weakness in semiconductor stocks weighed on the Nasdaq 100 and the overall market after the U.S. Commerce Department Friday imposed fresh curbs on China's access to American technology.  Also, automakers were under pressure Monday after UBS downgraded Ford and General Motors. On the positive side, food companies moved higher after Goldman Sachs said it is positive on the sector.  Overall trading activity was below average Monday, with the cash government bond market closed for Columbus Day.

Global semiconductor stocks fell Monday after the U.S. Commerce Department last Friday imposed fresh curbs on China's access to American technology. The restrictions include the export of U.S. chips used in artificial intelligence and supercomputing and tighter rules on the sale of semiconductor equipment to any Chinese company.

Comments Monday from Chicago Fed President Evans were hawkish for Fed policy and bearish for stocks when he said, "inflation has been persistent, and we need to see it come down."  He added, "I see the nominal funds rate rising to 4.5% early next year and then remaining at this level for some time while we assess how our policy adjustments are affecting the economy."

U.S. stock indexes bounced off their lows Monday on comments from Fed Vice Chair Brainard, who laid out a case for exercising caution as the Fed raises interest rates to curb high inflation, saying that previous Fed rate hikes are still working through the economy in a time of high global and financial uncertainty.

Today’s stock movers…

Chip stocks were under pressure Monday and weighed on the overall market after the U.S. Commerce Department Friday imposed fresh curbs on China's access to American technology.  Lam Research (LRCX) closed down more than -5%.  Also, Qualcomm (QCOM), Broadcom (AVGO), and Marvel Technology (MRVL) closed down by more than -4%.  In addition,  Applied Materials (AMAT) and Microchip Technology (MCHP) closed down more than -3%.

Automakers are weaker today after UBS downgraded Ford Motor and General Motors.  Ford Motor (F) closed down more than -4% after UBS downgraded it to sell from neutral, citing weak profit margins.  General Motors (GM) closed down more than -3% after UBS downgraded the stock to neutral from buy, saying it sees “demand destruction” for GM’s electric vehicle segment. 

U.S.-listed Macau casino operators tumbled Monday after Citigroup cut its estimate from Macau’s gross gaming revenue in October to 5.5 billion patacas from 7 billion patacas, citing disappointing revenue during the first nine days of this month.  Wynn Resorts (WYNN) closed down more than -12% to lead losers in the S&P 500.  Also, Las Vegas Sands (LVS) closed down more than -7%, and MGM Resorts International (MGM) closed down more than -3%.

Bio-Rad Laboratories (BIO) closed down more than -8% Monday after Dow Jones reported that the company is in talks to combine with Qiagen in a deal worth more than $10 billion.

U.S.-listed Chinese stocks moved lower Monday, with sentiment hurt by weak holiday spending data during the Golden Week holiday and new Covid flareups in China that sparked fresh pandemic restrictions.  Pinduoduo (PDD) closed down more than -8% to lead losers in the Nasdaq 100.  Also, Baidu (BIDU) and JD.com (JD) closed down by more than -3%.  In addition, Alibaba Group Holding (BABA) closed down more than -2%.

Merck & Co (MRK) closed up more than +3% Monday after saying a phase 3 trial of its sotatercept drug for treating pulmonary arterial hypertension met primary efficacy outcome measures.

Kraft Heinz Foods (KHC) closed up more than +2% Monday after Goldman Sachs upgraded it to buy from neutral. 

Food companies rallied Monday after Goldman Sachs said it is more positive on the sector as price increases are likely to be larger and longer lasting than previously thought, helping to support gross margin recovery as input costs subside.  As a result, McCormick & Co (MKC) closed up more than +3%.  Also, JM Smucker (SJM), Conagra Brands (CAG), and Campbell Soup (CPB) closed up more than +2%. 

Across the markets…

Dec 10-year T-notes (ZNZ22) on Monday closed down -15 ticks.  There was no trading of cash government bonds Monday due to the Columbus Day holiday.  Dec T-notes Monday fell to a 1-1/2 week low and were weighed down by weakness in European government bonds.  The 10-year German bund yield climbed to a nearly 11-year high Monday of 2.354%, and the 10-year UK gilt yield rose to a 1-1/2 week high of 4.552%. 

Dec T-notes Monday morning fell to their session lows on hawkish comments from Chicago Fed President Evans, who said he sees the nominal funds rate rising to 4.5% early next year and then remaining at this level for some time.  T-notes recovered from their worst levels Monday afternoon on comments from Fed Vice Chair Brainard, who laid out a case for exercising caution as the Fed raises interest rates to curb high inflation.

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