Stocks close lower for a fourth day as recession angst dashes hope of year-end rally

Recession fears and dashed hopes of a year-end rally weighed on stocks Monday, sending them to the fourth consecutive negative close.

The Dow Jones Industrial Average shed 163.85 points, or 0.50%, to close at 32,756.61. The S&P 500 fell 0.91% to 3,817.47, and the Nasdaq Composite shed 1.49%to 10,546.03 weighed down by shares of Amazon, which slipped 3%.

—Carmen Reinicke

Despite a dismal outlook for software stocks heading into 2023, Morgan Stanley sees opportunities within names focused on growth at a reasonable price.

The bank outlined its favorite software names for 2023 in a note to the client Monday, saying that companies that trade at attractive multiples, continue to grow margins, and offer solid long-term growth opportunities stand to benefit in the months ahead.

While IT spending budgets may dwindle or compress as a downturn looms, the bank views long-term growth for the sector as companies focus on the cloud.

Morgan Stanley highlighted Microsoft as one of the stocks poised to benefit from a consolidation in software spending, with its price target suggesting 25% upside from Friday's close.

CNBC Pro subscribers can check out the full list of stocks to make the cut here.

— Samantha Subin

This unusual media and entertainment stock is a top pick for 2023 because of the rising popularity of Formula One, according to Morgan Stanley. The investment firm said the stock can remain resilient even in a cooling economy.

In fact, this stock is expected to rip nearly 30% higher, according to the firm.

CNBC Pro subscribers can read about the stock here.

— Sarah Min

Stocks slid even further Monday and were near session lows heading into the final hour of trading.

The Dow Jones Industrial Average shed 300 points, or 1%. The S&P 500 fell 1.26%, and the Nasdaq Composite shed 1.68%, weighed down by shares of Amazon, which slipped 3%.

Stocks are on track to end December in negative territory after two consecutive weeks in the red.

—Carmen Reinicke

Evercore ISI's Mark Mahaney lowered his estimates and price target for Amazon, saying the investment firm's recent 2023 outlook report suggests further weakness ahead for online retail and cloud computing.

"We have cut our '23 & '24 Revenue ests by 4% & 5%, and our '23 & '24 Operating Income ests by 9% & 8% and are now below the Street. We have also lowered our PT to $150, based on 14X our '24 EBITDA of $114B," Mahaney wrote in a Sunday note.

Still, the analyst maintained an outperform rating on Amazon, saying the tech stock is the "highest quality asset we cover in terms of Revenue and Profit outlooks" for investors with two- to three-year time horizons.

"We continue to view AMZN as highly attractive for long-term investors as a DHQ (Dislocated High Quality) stock and see several Value Unlocks that we highlight in this report," he added.

Shares of Amazon cratered more than 45% this year. Still, the analyst's $150 price target, down from $170, represents upside of 70% from Friday's closing price.

— Sarah Min

Going into 2023, Carter Worth of Worth Charting has a top pick, UnitedHealth Group.

"If one were to try to be careful, prudent one thing is to always think large cap, another thing is to think defensive in terms of sector or theme, and then to pick a marquee name," Worth said on CNBC's "The Exchange" on Monday.

UnitedHealth has gained more than 4% year to date, outperforming the broader market.

"This is a stock that is clearly domestic - it doesn't care about currency, it doesn't care about oil, it doesn't care about Putin," he said. It is also the definition of a stock in an uptrend.

"Considering all things, this is as good of a pick as any going forward," he said.

On the flip side, he called Beyond Meat the stock of the year as it illustrated an important rule.

"Don't buy stocks in downtrends," he said. The stock has shed nearly 80% this year.

—Carmen Reinicke

SVB Private's Chief Investment Officer Shannon Saccocia says Rockwell Automation should benefit from companies improving their manufacturing capabilities in the U.S. in 2023.

"I like companies like a Rockwell Automation, for instance, that are able to improve the technology of these manufacturing companies, be able to make them more efficient, and hopefully mitigate some of the pressure that they have from hiring," she told CNBC's "Halftime Report" on Monday, noting that the sector's faced an exodus as older workers retire.

Saccocia views the manufacturing sector as an area of the economy ripe with opportunity as production issues arise in China. These problems should persist and convince many companies to shift production back to the U.S. and focus on capital expenditure to improve their capabilities.

Bringing manufacturing back to the U.S. "is one of the reasons that we are a bit more bullish on the U.S. than maybe we are on Europe in this in this period," she said.

— Samantha Subin

These stocks are making the biggest moves during Monday's choppy session.

Disney — Disney fell 3.6% after its film, "Avatar: The Way of the Water" fell short of box office expectations. The highly-anticipated movie brought in $134 million, less than the $175 million expected by analysts and under the $135 million to $150 million range Disney had forecast.

Aerojet Rocketdyne, L3Harris Technologies — Shares of Aerojet Rocketdyne rose 1.6% after the defense contractor agreed to be bought by rival L3Harris Technologies for $4.7 billion, or $58 per share in cash. L3 Harris fell more than 3%.

Casino operators — Wynn Resorts fell 4.2%, while MGM Resorts lost 2.9% and Las Vegas Sands dropped 1.6%. The casino operators were just awarded new 10-year concessions, or operating agreements, to operate their Macao casino resorts. Wynn has committed to investing $2.2 billion in Macao, while Las Vegas Sands is looking at a $3.75 billion investment and MGM plans to invest $2.1 billion.

Read more here.

—Carmen Reinicke, Michelle Fox

There's a key level on the S&P 500 that investors should be watching, Jonathan Krinsky of BTIG said in a Monday note.

"As far as SPX levels, we are still watching for the gap at 3,818 (~3,845 for ESH3) to get filled," he said. "It looks like it wants to get filled sooner than later. If that does get filled, then we think some consolidation is likely in the 3,800-3,900 range."

He also said that low-volatility continues to outperform, which is generally "not a risk-on sign." He noted that semiconductors are down more than 2% today.

"SMH still has $10 of downside to fill its November 9th gap," he said.

He added that dismal days are likely to continue through 2023, even though analysts generally think the year will be better for both stocks and bonds.

"While we just wrote about how the bond/stock correlation appeared to be flipping, today is back to what we saw for much of 2022, stocks and bonds down," he said. "There will be days like this, but we expect as we head into 2023 the correlation will continue to move towards stocks down, bonds up."

—Carmen Reinicke

After two weeks of back-to-back losses, there may be a brighter two weeks ahead for stocks as the year comes to an end, according to Citi.

"Just as the Grinch has a late epiphany, the final-two-week equity seasonals are brighter, and less influenced by the poor YTD returns," wrote analyst Alex Saunders in a Monday note. "To be sure, our Global Asset Allocation team remain bearish going into a recession year but there is the possibility of some welcome short-term relief from a challenging year over the next few weeks."

In October, Citi noted that negative years have less potential for rallies in the final weeks. This year especially, interest rate hikes have weighed on equities.

"We did not see a lasting November/December rally this year so far, as Santa Claus effects are much more muted in down years," Saunders wrote. "However, December seasonals in these final two weeks are more positive at +2% on average."

That may carry forward to the start of next year. Still Citi sees a recession likely in 2023 and is underweight equities.

—Carmen Reinicke

The S&P 500 has dropped more than 6% this month, as Wall Street struggles heading into year-end. That puts in on track for its worst monthly performance since September. It would also be its biggest December decline since 2018, when it slid 9.18%.

— Fred Imbert

Expect the unexpected is Telsey Advisory Group's advice for 2023. The firm expects current conditions to prevail as the year begins. Discretionary spending will be strained and companies will move inventory with the help of discounting. But Dana Telsey, the firm's CEO and chief research officer, said the second half of the year could be a good one for the industry. Profits are likely to recover from easier comparisons, inventory will be lean and inflation will be moderating, she said.

Stripping out autos, gas, food and drinking places, Telsey expects the core U.S. retail sales to grow 4.2% to $5 trillion next year, which admittedly is a bit slower than the projected 2022 growth of 7.0% from 2021.

Retail stocks are largely trading at valuations that are discounted relative to historical levels, suggesting investors have already priced in an economic downturn, she said. Some of Telsey's top picks are Amazon, Ralph Lauren and Nike.

Telsey's $140 price target for Amazon suggests nearly 60% upside from Friday's closing price, making it one of the firm's top picks.

"Amazon is gaining market share by leveraging its sticky Prime customer base, exanding into new categories, such as grocery, pharmacy, and fashion, and growing AWS to enhance profitability," she wrote in a research note Monday. In addition, Amazon also stands to benefit from cost-saving efforts, which should help boost profits next year and beyond.

As for those current conditions, foot traffic at the malls continues to be weak, prompting some retail analysts to speculate that the pace of store closures will pick up in the coming year.

—Christina Cheddar Berk

Shares of Amazon sold off Monday, slipping as much as 3% to the lowest levels seen since March 2020.

The losses brought Amazon's year to date slump to more than 48%. The company has been caught up this year in the technology rout that's weighed on companies sensitive to higher interest rates.

—Carmen Reinicke

Shares of the Walt Disney Company dropped more than 3% after ticket sales of "Avatar: The Way of Water" fell short of box office forecasts.

In its opening weekend, the Avatar sequel netted $134 million at the domestic box office, which was lower than the $175 million forecasted by industry analysts, and below the $135 million to $150 million range estimated by Disney.

Last week, Needham's Laura Martin cut her estimates for the first quarter of 2023, saying she expects Disney will face pressure from the large marketing budget to launch the Avatar the sequel. Disney ended its most recent fiscal year in October 1, 2022.

"Much of the profit pressure in the Dec quarter came from the large marketing budget to launch Avatar, The Way of Water whereas revenue only began on the Dec 16th release date," she wrote.

— Sarah Min, Sarah Whitten

Stocks are trading mixed on Monday, sending some individual names to 52-week highs and lows.

These are the stocks hitting 52-week lows today:

• Warner Bros. Discovery (WBD) trading at lows not seen since May, 2009
• Capital One (COF) trading at lows not seen since Dec, 2020
• Signature Bank (SBNY) trading at lows not seen since Nov, 2020
• Zions Bancorporation (ZION) trading at lows not seen since Feb, 2021
• Baxter (BAX) trading at lows not seen since Feb, 2017
• Trimble (TRMB) trading at lows not seen since Nov, 2020
• Western Digital (WDC) trading at lows not seen since Mar, 2020

 On the flip side, here are the names hitting 52-week highs:

• Campbell Soup Company (CPB) trading at levels not seen since June, 2017
• J.M. Smucker Company (SJM) trading at levels not seen since Aug, 2016
• Arch Capital Group (ACGL) trading at all-time high levels back to when it began trading on the NASDAQ in 2000
• Lamb Weston (LW) trading at levels not seen since Feb, 2020

—Carmen Reinicke

The Federal Reserve is likely overdoing it's rate hikes to tame inflation and could end up tipping the U.S. economy into a recession, Ed Hyman of Evercore ISI wrote in a Sunday note.

The Federal Funds rate is now 6.5% versus a core PCE of 4.7% on the year and bond yields at 3.5%, Hyman wrote.

"And it's not just the Fed tightening: ECB, BoE, Mexico, Switzerland, and Norway also tightened last week," he said. "Perhaps more profoundly, the money supply is contracting."

In addition, Evercore's economic diffusion index is approaching recession territory along with other indicators such as company surveys, inflation data and layoff announcements. And, wage gains have started to slow and high rents are showing early signs of easing, signaling that inflation has likely run its course.

"In any event, 87 percent of American voters are concerned about a recession," said Hyman.

—Carmen Reinicke

It's been a rough year for home builders. Builder sentiment dropped two points to 31 in December, according to the National Association of Home Builders survey. The report marked the twelfth consecutive monthly decline for the index.

It also notched one of the lowest readings of the index since 2012, excluding the onset of the pandemic in spring 2020.

Confidence in the sector has been dragged down by high mortgage rates, elevated construction costs due to inflation and waning consumer demand.

—Carmen Reinicke, Diana Olick

Jefferies upgraded shares of Moderna to buy from hold, saying a promising new cancer vaccine from the pharmaceutical company has renewed interest in the stock.

"We upgrade MRNA to BUY on significant new pipeline story and catalysts ahead. The Covid vaccine story is old and numbers came way down already and most investors don't care much on this anymore. New story is now PCV cancer vaccine opportunity, Phase III RSV data coming up, doublet and triplet virus vaccines in 2023," Analyst Michael Yee wrote in a Monday note.

CNBC Pro subscribers can read the full story here.

— Sarah Min

Stocks were little changed at Monday's open as investors weighed recession fears following the Fed's interest rate hike last week.

The Dow Jones Industrial Average fell 28 points, or 0.09%. The S&P 500 and the Nasdaq Composite rose 0.05%, respectively.

Stocks are on track to end December in the red, and a Santa Claus rally is looking less likely.

—Carmen Reinicke

MoffettNathanson downgraded AT&T to underperform from market perform, saying the stock looks overvalued heading into 2023.

"Over the period of AT&T's sharp bounce, free cash flow expectations for the company have only worsened," Craig Moffett wrote. "And while we expect them to provide guidance suggesting that FCF will rise YoY in 2023, we're skeptical about whether it actually will."

CNBC Pro subscribers can read the full story here.

— Sarah Min

Stock futures fell Monday ahead of market open, erasing all gains from earlier in the morning as Wall Street digested recession fears.

Futures tied to the Dow Jones Industrial Average shed 9 points, or 0.01%, while S&P 500 and Nasdaq 100 futures advanced 0.03% and 0.09%, respectively.

—Carmen Reinicke

Despite two-years of outperformance, Piper Sander is still constructive on the energy space and has named Exxon Mobil a top pick among U.S. integrated oil companies.

"XOM remains the globe's largest refiner, representing ~20% of global earnings, and in particular, has more exposure to US refining than many of its global peers," analyst Ryan Todd wrote in a note Monday.

"We see significant upside to current Street estimates for 2023 refining … our US independent Refiners earnings are ~100% of consensus, and expect positive revisions through 2023 to be a material source of positive revisions for the IOCs."

Todd slightly lowered his price target to $127 from $131, which still implies 21% upside from Friday's close. Exxon Mobil has surged more than 71% so far this year.

— Michelle Fox

These are the stocks that are making the biggest moves in premarket trading Monday.

Aerojet Rocketdyne (AJRD) – Aerojet Rocketdyne rose 2% after it agreed to be bought by rival defense contractor L3Harris Technologies (LHX) for $4.7 billion, or $58 per share in cash. L3Harris fell 1.7%.

Mesa Air Group (MESA) – Mesa shares surged 6.8% in premarket trading after the airline's announced that it is finalizing a deal to run regional flights for United Airlines. It is also ending its partnership with American Airlines (AAL).

Sinclair Broadcast Group (SBGI) – Sinclair fell 4.4% in premarket trading after the New York Post reported that bankruptcy is likely for Sinclair's Diamond Sports Group, which operates 21 regional sports networks.

Read more here.

—Carmen Reinicke, Peter Schacknow

Oppenheimer analyst Colin Rusch downgraded Tesla to perform from outperform, noting that CEO Elon Musk's handling of Twitter is hurting the electric car market.

"While we continue to see Tesla evolving EV and autonomous technology in advance of peers and driving costs to levels those peers will struggle to match—and have tried to separate Elon Musk's non-Tesla endeavors (personal and professional) from our analysis on TSLA—we believe Mr. Musk's acquisition and subsequent management of Twitter now make that separation untenable," Rusch wrote in a Monday note.

To be sure, Musk conducted a poll Sunday asking Twitter users whether he should step down, with most respondents voting yes. Musk said there's no successor in place at the moment.

CNBC Pro subscribers can read more here.

— Sarah Min

Goldman Sachs named SolarEdge Technologies and First Solar as top picks for the new year, noting that both stocks have big upside over the next 12 months.

"While solar equities outperformed in 2022 vs. R2K, stocks are still ~20% below early '21 peak levels and valuations remain below pre-IRA levels," analyst Brian Lee wrote.

"This is despite fundamentals having significant positive momentum that we see setting up for healthy upside across many pockets of the group into 2023, particularly in the backdrop of improving margins and policy tailwinds (not uncertainties)," Lee added.

CNBC Pro subscribers can read the full story here.

— Sarah Min

Don't be surprised if the market volatility experienced in 2022 continues into the new year, according to Art Hogan, chief market strategist at B. Riley Financial.

"The market has been in a tug-of-war between better-than-feared economic data juxtaposed with concerns about the potential for the Fed to over-tighten monetary policy and push the economy into a recession," he wrote in a note to clients Friday. "That tug-of-war will likely continue in the first quarter of 2023 unless and until the Fed gets to their terminal fed funds rate.

Investors should expect a "bumpy ride" within the first few months of the year as the central bank grinds toward its terminal fed funds rate.

"Weaker economic trends will likely form heading into 2023 as the Fed battles inflation, but a mild recession may help set stocks up for a better second half of the year," he said.

Given this backdrop, Hogan recommends a "barbell" investing approach, with a focus on energy, staples and healthcare. On the other end, investors should look for well-priced growth companies that have undergone a price-to-earnings multiple contraction. These companies should offer balance sheet liquidity and strong free cash flows, with leadership roles in their sectors.

— Samantha Subin

Here's where the major averages stand heading into one of the final trading weeks of 2022

Dow Jones Industrial Average:

• Down 4.83% for December
• 10.91% off its record high
• Down 9.41% for the year

S&P 500

• Down 5.58% this month
• Sits 20.05% off its record highs
• Down 19.17% for 2022

Nasdaq Composite:

• Down 6.65% this month
• 32.68% off its highs
• Down 31.57% for the year

— Samantha Subin, Chris Hayes

Stock futures opened slightly lower to start the week.

Futures tied to the Dow Jones Industrial Average fell 18 points, or 0.05%. S&P 500 and Nasdaq 100 futures slipped 0.04% and 0.05%, respectively.

— Samantha Subin