Stocks Tumble as Strong U.S. Economic News Fuels Hawkish Fed

What you need to know…

The S&P 500 Index ($SPX) (SPY) on Monday fell -1.79%, the Dow Jones Industrials Index ($DOWI) (DIA) fell -1.40%, and the Nasdaq 100 Index ($IUXX) (QQQ) fell -1.73%.  

Stocks on Monday closed sharply lower.  Monday’s stronger-than-expected U.S. economic news sent bond yields soaring as the market is concerned the Fed will need to keep interest rates higher for longer to combat persistent inflation.  The 10-year T-note yield Monday finished the day up sharply by +11.7 bp at 3.603%.

A fall of more than -6% in Tesla Monday undercut technology stocks after it said it plans to reduce vehicle production at its Shanghai factory.

A rally in Chinese stocks Monday provided some carry-over support to U.S. and global markets as the Shanghai Composite rallied +1.76% to a 2-1/2 month high after Chinese authorities accelerated a shift toward reopening the economy.   

U.S. Oct factory orders rose +1.0% m/m, stronger than expectations of +0.7% m/m and the biggest increase in 4 months.

The U.S. Nov ISM services index unexpectedly rose +2.1 to 56.5, stronger than expectations of a decline to 53.5.

Today’s stock movers…

Weakness in bank stocks Monday weighed on the overall market.  Zions Bancorp (ZION), SVB Financial Group (SIVB), and Signature Bank of New York (SBNY) closed down more than -7%. Fifth Third Bancorp (FITB) and PNC Financial Services Group (PNC) closed down more than -6%.  Comerica (CMA), Regions Financial (RF), Truist Financial Group (TFC), and Citizens Financial Group (CFG) closed down more than -5%.  Wells Fargo (WFC), Bank of America (BAC), and M&T Bank (MTB) closed down more than -4%. 

VF Corp (VFC) closed down more than -11% Monday to lead losers in the S&P 500aq 100 after cutting its full-year revenue forecast to up +3% to +4% from a previous prediction of up +5% to +6%.  Also, President Rendle said he is retiring as CEO. 

Salesforce (CRM) closed down more than -7% to lead losers in the Dow Jones Industrials after the CEO of Salesforce's Slack devision said he is leaving the company in January along with two other veteran Slack executives. Salesforce acquired Slack in July 2021 for $27 billion.

Tesla (TSLA) closed down more than -6% after Bloomberg reported that the company plans to cut vehicle production at its Shanghai factory, which could reduce production by about -20%. 

Kroger (KR) closed down more -than 3% after Deutsche Bank lowered its price target on the stock to $55 from $56.

Airline stocks rose Monday after Morgan Stanley said 2023 could be a “Goldilocks” year for air travel and boost earnings beyond current expectations.  United Airlines Holdings (UAL) closed up more than +2% to lead gainers in the S&P 500 after Morgan Stanley upgraded the stock to overweight from neutral.  Also, Delta Air Lines (DAL) closed up more +0.22%, and Alaska Air Group (ALK) closed up +0.02%. 

U.S.-listed Chinese stocks moved higher Monday as China accelerated the easing of Covid restrictions after Shanghai, Shenzhen, and Guangzhou scrapped Covid testing requirements to enter most public venues, except some locations such as restaurants, bars, and nursing homes.  Baidu (BIDU) closed up more than +2% to lead gainers in the Nasdaq 100.  Also, Pinduduo (PDD) closed up +1.69%, and JD.com (JD) closed up +0.92% 

MGM Resorts International (MGM) closed up nearly +2% after Truist Securities upgraded the stock to buy from hold amid renewed optimism on China reopening.

Activision Blizzard (ATVI) closed up +0.8% after Bloomberg News reported that Microsoft is ready to fight for its $69 billion acquisition of the company if the U.S. Federal Trade Commission files a lawsuit seeking to block the deal.

Across the markets…

March 10-year T-notes (ZNH23) on Monday closed down -25.5 ticks, and the 10-year T-note yield rose +11.7 bp to 3.603%. March T-notes Monday retreated on negative carry-over from last Friday’s stronger-than-expected U.S Nov payroll report. Losses in T-note prices accelerated Monday after better-than-expected U.S. factory orders and ISM services reports bolstered the outlook for tighter Fed policy.

No Fed officials are scheduled to speak over the next week due to the usual pre-meeting blackout ahead of next week’s Dec 13-14 FOMC meeting.  The market consensus is for the Fed to boost rates by +50 bp at next week’s policy meeting, less than the +75 bp rate hikes seen at each of the past four FOMC meetings.

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