Stocks Fall on Global Growth Risks as the Pandemic Worsens in China

What you need to know…

The S&P 500 Index ($SPX) (SPY) today is down -0.56%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -0.46%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -0.26%.  

Stocks this morning are moderately lower on concern a worsening pandemic in China will prompt the government to tighten lockdowns and restrictions, undermining the prospects for global growth.   Sporadic nationwide protests in China have broken out in the past several days over the government’s strict Covid Zero policies.  China reported a record 38,808 new Covid infections on Sunday.

Also, a fall of more than -1% in Apple today is weighing on technology stocks after a Bloomberg report said that lockdowns and turmoil at a key Chinese factory could lead to a production shortfall of close to 6 million iPhone Pro units this year.

In addition, energy stocks are moving lower today, with WTI crude down more than -2% at an 11-month low on global energy demand concerns. 

In another bearish factor, Goldman Sachs warned that while monetary policy should become less of a headwind next year, slowing global growth will keep stocks under pressure. Goldman also said stocks don't yet reflect the risk of a U.S. recession as their model implies a 39% probabi         lity of a U.S. growth slowdown in the next 12 months, but risk assets are pricing in only an 11% chance.

Stock indexes recovered from their worst levels today on a decline in bond yields after the 10-year T-note yield fell to a 7-week low of 3.619%. 

Today’s stock movers…

TransDigm Group (TDG) is down more than -4% today to lead losers in the S&P 500 after Wells Fargo Securities downgraded the stock to equal weight from overweight.

Biogen (BIIB) is down more than -2% to lead losers in the Nasdaq 100 after a second death was reported linked to Biogen’s experimental drug for Alzheimer’s disease the company is developing with Eisai Co. 

Energy stocks and energy service providers are falling today, with the price of crude oil down more than -2% at an 11-month low. APA Corp (APA), Diamondback Energy (FANG), Devon Energy (DVN), and Marathon Oil (MRO) are down more than -3%. Also, Chevron (CVX) is down more than -2% to lead losers in the Dow Jones Industrials.  In addition, Haliburton (HAL), Exxon Mobil (MRO), Schlumberger (SLB), and ConocoPhillips (COP) are down -2% or more.

Apple (AAPL) is down more than -1% today on a Bloomberg report that said lockdowns and turmoil at a key Chinese factory could lead to a production shortfall of close to 6 million iPhone Pro units this year.

Williams-Sonoma (WSM) is down more than -4% after S&P Morgan Stanley downgraded the stock to underweight from equal weight.

Tyson Foods (TSN) is down more than -2% after Barclays downgraded both stocks to underweight from equal weight. 

Wynn Resorts (WYNN) is up more than +4% to lead gainers in the S&P 500 after JPMorgan Chase upgraded the stock to overweight from neutral. 

Live Nation Entertainment (LYV) is up more than +1% after Citigroup upgraded the stock to buy from neutral.

Activision Blizzard (ATVI) is up more than +1% after Wells Fargo Securities upgraded the stock to overweight from equal weight.

U.S.-listed Chinese stocks are moving higher today as Pinduoduo surged after reporting better-than-expected earnings.  Pinduoduo (PDD) is up more than +14% to lead gainers in the Nasdaq 100 after reporting Q3 revenue of 35.50 billion yuan, well above the consensus of 30.90 billion yuan.  Other U.S.-listed Chinese stocks also rallied on the news, with NetEase (NTES) up more than +4%, Baidu (BIDU) up more than -3%, JD.com (JD) up more than +2%, and Alibaba Group Holding (BABA) up more than +1%. 

Across the markets…

Dec 10-year T-notes (ZNZ22) today are up +6 ticks, and the 10-year T-note yield is down -3.8 bp at 3.674%.  Dec T-notes today climbed to a 7-week high, and the 10-year T-note yield fell to a 7-week low of 3.619%.   T-notes recovered from early losses today and moved higher on a slump in stocks and global growth concerns due to record Covid infection in China.  T-note prices were undercut by higher European government bond yields, with the 10-year German bund yield up +1.8 bp at 1.993%. 

The dollar index (DXY00) this morning is down by -0.16% and fell to a 3-1/2 month low.  The dollar is under pressure today on concern that the worsening pandemic in China could reduce global economic growth, which may push the Fed to slow the pace of its interest rate hikes.

EUR/USD (^EURUSD) today is up by +0.48% and climbed to a 4-3/4 month high.  A weaker dollar today is boosting the euro.  EUR/USD also has support today on hawkish ECB comments.  ECB President Lagarde said the ECB must continue to raise interest rates even as the economy weakens into 2023.  Also, ECB Governing Council member Knot said it is a "bit of a joke" to talk about the ECB over-tightening now. 

Eurozone Oct M3 money supply rose +5.1% y/y, weaker than expectations of +6.1% y/y and the smallest increase in 2-3/4 years. 

ECB President Lagarde said borrowing costs will continue to rise even as economic activity slows down as "we expect to raise rates further to the levels needed to ensure that inflation returns to the ECB's 2% medium-term target in a timely manner."

ECB Governing Council member Knot said it is a "bit of a joke" to talk about the ECB over-tightening now.  "To bring inflation back to target in the Eurozone, we will need a protracted period of time at which at least growth is below potential because otherwise, we will never get disinflation going."

USD/JPY (^USDJPY) this morning is down by -0.46%.  The yen today rallied to a 2-3/4 month high against the dollar as record Covid infections in China and nationwide protests against the country’s strict Covid Zero policies have boosted safe-haven demand for the yen from Japanese investors who may be looking to repatriate overseas assets.

December gold (GCZ2) this morning is down -4.8 (-0.27%), and December silver (SIZ22) is down -0.090 (-0.42%).  Precious metals prices this morning are moderately lower.  Hawkish comments today from ECB President Lagarde weighed on metals prices when she said the ECB would continue to raise interest rates even as economic activity slows down.  A weaker dollar today and a slump in stocks are limiting losses in gold.  Gold also has support on increased safe-haven demand after China reported new Covid infections rose to a new record high Sunday.

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