Stocks Retreat on Tech Weakness and Warnings from Bank CEOs

What you need to know…

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

Stocks on Tuesday fell sharply for a second day, with the S&P 500 and Dow Jones Industrials falling to 2-1/2 week lows.  A slump in crude prices Tuesday of more than -3% to an 11-1/2 month low weighed on energy stocks and the overall market.  Also, a sell-off in chip stocks weighed on technology stocks and the overall market after recent sales information from the Semiconductor Industry Association showed ongoing weakness with memory products.

Losses in U.S. stock indexes accelerated Tuesday on comments from U.S. bank chiefs.  David Solomon, head of business development at Goldman Sachs, warned about pay and job cuts, citing "some bumpy times ahead."  Also, JPMorgan Chase CEO Dimon said a "mild to hard recession" may hit next year.

A sell-off in Meta Platforms by more than -6% was negative for the overall market, after a report that said the European Union is targeting Facebook’s ad model.  Media stocks also retreated Tuesday as Paramount Global tumbled more than -6% and Warner Bros Discovery fell more than -4% after Paramount CEO Bakish said he expects advertising in Q4 to be “a bit below” Q3 results.

Global stock markets had carry-over support Tuesday from a rally in China’s Shanghai Composite Stock Index to a new 2-1/2 month high as the Chinese government accelerates the easing of Covid restrictions.  Beijing today joined Shanghai, Shenzhen, Guangzhou, and other major Chinese cities in scrapping Covid testing requirements to enter most public venues. 

Lower bond yields are also supportive for stocks as the 10-year T-note yield Tuesday fell -6.4 bp to 3.510%.  Fed officials have recently signaled that the Fed will downshift to a +50 bp rate hike at next week’s FOMC meeting after four straight +75 bp increases. 

Today’s stock movers…

A slump of more than -3% in WTI crude oil to an 11-1/2 month low Tuesday undercut energy stocks and energy service providers. APA Corp (APA) closed down more than -4%. Also, Marathon Oil (MRO), Devon Energy (DVN), ConocoPhillips (COP), Hess (HES), Occidental Petroleum (OXY), and Marathon Petroleum (MPC) closed down more than -3%. 

Semiconductor stocks were under pressure Tuesday after October sales data from the Semiconductor Industry Association showed ongoing weakness with memory products.  As a result, advanced Micro Devices (AMD) and Marvell Technology (MRVL) closed down more than -4%.  Also, Nvidia (NVDA) and NXP Semiconductor NV (NXPI) closed down more than -3%.  In addition, Qualcomm (QCOM) and Lam Research (LRCX) closed down more than -2%. 

NRG Energy (NRG) closed down more than -15% Tuesday to lead losers in the S&P 500 after agreeing to buy Vivint Smart Home for $2.8 billion. 

Meta Platforms (META) closed down more than -6% following a Wall Street Journal report about privacy regulators at the European Union ruling that Facebook shouldn’t require users to agree to personalized ads based on their online activity, which could limit the data that Facebook can access to sell such ads. 

Paramount Global (PARA) closed down more than -6% after CEO Bakish said he expects advertising in Q4 to be “a bit below” Q3 results.  Warner Bros Discovery (WBD) also fell more than -4% on the news.

Edwards Lifesciences (EW) closed down more than -2% after Stifel downgraded the stock to hold from buy. 

Textron (TXT) closed up more than +5% to lead gainers in the S&P 500 after the U.S. Army selected the company to build the Future Long-Range Assault Aircraft helicopter in a contract worth up to $1.3 billion.

Airline stocks rose Tuesday after the International Air Travel Association predicted the airline industry will see its first post-pandemic profit in 2023, as a travel rebound in the U.S. offsets the impact of ongoing Covid curbs in China.  United Airlines Holdings (UAL) and American Airlines Group (AAL) closed up more than +1%.  Also, Southwest Airlines (LUV) closed up +0.5%, and Delta Air Lines (DAL) closed up +0.3% 

Alcoa (AA) closed up more than +3% after Bloomberg reported that the U.S. and EU are weighing climate-based tariffs on Chinese steel and aluminum. 

U.S.-listed Chinese stocks Tuesday pushed higher as China accelerates the easing of Covid restrictions after Beijing today joined Shanghai, Shenzhen, Guangzhou, and other major Chinese cities in scrapping Covid testing requirements to enter most public venues. Baidu (BIDU), Alibaba Group Holding (BABA), and JD.com (JD) closed up more than +1%. 

Across the markets…

March 10-year T-notes (ZNH23) on Tuesday closed up +16 ticks, and the 10-year T-note yield fell -6.4 bp to 3.510%.  March T-notes Tuesday moved higher as a stock sell-off sparked safe-haven demand for T-notes.  Also, a slump in crude prices by more than -3% Tuesday to an 11-1/2 month low undercut inflation expectations and gave T-note prices a boost. 

T-notes Tuesday also garnered support from declines in European government bond yields.  The 10-year German bund yield fell -8.0 bp to 1.800%, and the 10-year UK gilt yield fell -2.8 bp to 3.076%.  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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