Stocks closed lower on Monday with the Nasdaq Composite index falling to the lowest level in two years as tech shares continue to be the hardest hit in this bear market because of spiking interest rates.
The Nasdaq Composite closed 1.04% lower at 10,542.10, hitting its lowest close since July 2020, weighed down by a slump in semiconductor stocks such as Nvidia and AMD. The S&P 500 also fell 0.75% to 3,612.39, dragged down by semi stocks and dips in major tech names like Microsoft, while the Dow Jones Industrial Average shed 93.91 points, or 0.32%, to close at 29,202.88.
The declines came as JPMorgan CEO Jamie Dimon warned that the U.S. would likely fall into a recession in 2023, and that it may not be just a mild economic contraction as some economists have projected.
A policy change weighed on semiconductor stocks after the Biden administration announced new export controls that limit U.S. companies selling advanced computing semiconductors and related manufacturing equipment to China. Tech shares have also been hit the hardest in this sell-off as rising rates expose their relatively high valuations and raise their cost of capital.
While the bond market was closed, futures on the 10-year Treasury note were lower in Monday trading indicating yields will continue their march higher on Tuesday. Yields move inversely to prices. The price of 10-year Treasury futures were lower by about 0.6%. Trading volume was also lower than usual on Monday due to the Columbus Day Holiday.
"There are a lot of market participants that really key off of what the Treasury yields are doing, and when they're not open it's hard to have that volume in the market," said Art Hogan, chief market strategist at B. Riley Financial. "We're probably going to be in wait and see mode until we open in full force tomorrow."
Investors were also cautious ahead of key earnings and inflation reports this week that will shed new light on the U.S. economy. Four of the world's largest banks – JPMorgan, Wells Fargo, Morgan Stanley and Citi – report Friday. PepsiCo, Delta and Domino's are also among companies reporting next week.
September Producer Price Index data comes Wednesday and Consumer Price report is scheduled for Thursday.
The Nasdaq's losses for the year are now greater than 32% after Monday's decline. The S&P 500 is off by more than 24% in 2022.
UBS screens for stocks offering upside potential and those with downside risk heading into Q3 earnings
In light of Q3 earnings that are expected to show their slowest growth of this year and the weakest since 2020, UBS has identified both stocks with upside potential and those with downside risk.
"Margin gains in '23 [are] at odds with fading sales growth expectations," UBS equity strategist Keith Parker said in a note Monday.
Stocks with earnings upside include Tempur Sealy Intl., Kellogg, Danaher, Corteva and Sonoco Products.
Those companies with downside risk were named by UBS as Ross Stores, Weber, RealReal, Simply Good Foods and DocuSign.
— Tanaya Macheel
Growth ETFs lag as market attempts intraday comeback
The Dow is trying to squeak out a positive session on Monday, but struggles for some growth-focused ETFs show that investors are not exactly piling back into risk.
— Jesse Pound
Stocks slump in final hour of trading Monday
Stocks traded lower in the final hour of trading Monday after whiplashing during the day. The S&P 500 shed 0.71%, off lows of the day where it came within four points of its 52-week low. The Dow Jones Industrial Average shed 52 points, while the Nasdaq slipped 0.86%.
Earlier in the day, the Nasdaq hit its lowest level in two years.
S&P 500 nears 52-week low
The S&P 500 came within four points of its 52-week low during Monday's volatile trading session, weighed down by falling semiconductor and technology stocks.
At lows of the day, the S&P 500 fell to 3,588.10. The indexes current 52-week low is the 3,584.13 level it hit on Sept. 30.
Markets will have new inflation data to react to every day this week
Markets are gearing up for a major week of inflation data that could move bonds and stocks for the rest of the week after a low-volume Monday.
On Tuesday, the New York Fed survey of consumer expectations, including what they think of inflation, comes out. On Wednesday and Thursday, the producer and consumer price indexes will be released. Then, on Friday, Consumer sentiment is released.
"Bond markets are closed today but I have a feeling they're going to be busy digesting all of the inflation data that's coming out," said Shawn Cruz, Head Trading Strategist at TD Ameritrade. He added that inflation data has driven much of the market's choppiness lately, as it will depend how aggressive the Federal Reserve is with continued rate hikes going forward.
-- Carmen Reinicke
Brainard says Fed is watching global 'spillovers' and 'lags' of rate hikes
Fed Vice Chair Lael Brainard said at an event in Chicago that the central bank was seeing "tentative" signs of a cooling labor market and acknowledged that "lags in transmission" mean that the Fed's recent rate hikes will have a growing impact on non-housing sectors of the economy in the coming months.
Brainard also said the Fed was aware of the impact of hikes on the global economy, and not just in the U.S.
"The combined effect of concurrent global tightening is larger than the sum of its parts. The Federal Reserve takes into account the spillovers of higher interest rates, a stronger dollar, and weaker demand from foreign economies into the United States, as well as in the reverse direction. We are attentive to the risk of further adverse shocks—for instance, from Russia's war against Ukraine, the pandemic, or China's zero-COVID policies," Brainard said.
Brainard did not reveal her preference for the size of rate hikes going forward nor suggest that the Fed pause its tightening process, but stocks appeared to rebound slightly after the comments were released.
Brainard also pointed to high profit margins in some sectors, such as auto dealerships, as proof that rate hikes have not yet had their desired impact.
"Monetary policy will be restrictive for some time to ensure that inflation moves back to target over time. It will take time for the cumulative effect of tighter monetary policy to work through the economy broadly and to bring inflation down," she said.
Pharmaceutical companies among stocks with unusual volumes
Immunic shares shot up 49.5% following news of a securities purchase agreement with a 10% upside to Friday's closing price. The company focuses on the treatment of chronic inflammatory and autoimmune diseases.
scPharmaceuticals plunged 21.7% after the company announced it entered into a $100 million debt financing agreement with Oaktree Capital Management. The company also announced Monday it received Food and Drug Administration approval for FUROSCIX, which treats congestion due to fluid overload in adults with certain types of chronic heart failiure.
— Alex Harring
Bank of England's stimulus moves send bond yields soaring
The Bank of England's efforts to exit its ultra-easy monetary policy reverberated through bond markets Monday, sending UK yields higher and leading traders to up their best on rates in the U.S.
An announcement from the BofE indicated that the central bank will implement measures to achieve an "orderly end" to its scheduled termination Friday of its quantitative easing program. The bank said it will launch multiple liquidity facilities to make sure markets continue to function properly amid the QE exit.
Yields on 10-year gilts jumped nearly 23 basis points to 4.455% by 1 p.m. New York Time. Other areas across the yield curve moved even higher. German 10-year bund yields jumped in kind, moving to 2.34% after earlier hitting the highest levels since November 2011.
At the same time, the fed futures contracts priced in higher rates in the U.S. The April 2023 contract implied a rate of 4.715%, well above the current range of 3%-3.25% and the Fed's unofficial forecast terminal rate of 4.6%.
The BoE's move was seen parts of the market as a gamble to restore its credibility following weeks of volatility.
"Whether the government succeeds or fails in shoring up fiscal credibility will define the trade-off facing the Bank," Krishna Guha, head of central bank strategy for Evercore ISI, said in a note. "If it fails, the market rate curve will move up further, and the Bank will face a near-impossible trade-off between validating these expectations and crushing the economy and housing market, or trying to deliver less than the market expects, and crashing sterling and risking inflation expectations."
The U.S. bond market was closed Monday for the Columbus Day holiday.
The light at the end of the tunnel is an earnings recession train the Fed can't stop, Morgan Stanley says
Instead of a light at the end of the tunnel, markets are barreling towards an earnings recession train that the Federal Reserve can't stop, Morgan Stanley chief equity strategist Michael Wilson wrote in a Friday note.
"Fire and Ice remains in gear with M2 growth now into the danger zone where financial/economic stress occurs," Wilson wrote, adding "while the Fed can fix this by restarting QE, it cannot stop the oncoming earnings recession."
Morgan Stanley remains bearish and sellers of rallies until the price is right, and sees many macro risks including weakness in Europe, dollar strength, higher rates, China's reopening in focus in corporate commentary in earnings.
The firm also sees that bear market conditions have not been met, so it's too soon to call the end of the cycle.
Jamie Dimon warns of U.S. recession in 'six to nine months'
JPMorgan CEO Jamie Dimon said Monday that the U.S. economy is likely to