The Dow Jones Industrial Average was lower Monday even after U.S. legislators were able to come to a short-term agreement that staved off a government shutdown.
The 30-stock Dow declined 74.15 points, or 0.22%, to 33,433.35. The S&P 500 inched higher by 0.01% to close at 4,288.39. The Nasdaq Composite added 0.67% to close at 13,307.77 and notch its fourth consecutive positive day.
The small-cap focused Russell 2000 fell 1.6% on Monday, pulling it down 0.3% year to date. This marked the first time the index turned negative in 2023, underscoring trouble among small-cap names. The Russell 2000 is often thought of as a better insight into the health of the broader economy due to its focus on smaller businesses.
The market action took place amid a backdrop of rising bond yields. The yield on the 10-year Treasury topped 4.7% at its session high, marking its highest level since October 2007.
Technology, communications services and consumer discretionary were the only positive sectors in the broad market index. Communication services added 1.5%, while the tech sector traded 1.3% higher. Consumer discretionary gained 0.3%.
The Senate passed a continuing resolution with just hours to spare before a midnight deadline Saturday, which was then signed by President Joe Biden into law. The bill keeps the government open through mid-November, an extended period that lawmakers can use to finalize funding legislation.
Historically, the market "has not cared" about government shutdowns, according to Charles Schwab senior investment strategist Kevin Gordon. He noted that the average performance for the S&P 500 from the start to the end of a shutdown has been "basically flat" in the past.
"I think the conditions that we're in and that surround us are much more important. So, as we head into the year-end, if [we] don't see an improvement in key areas of the economy, like housing and manufacturing, if [we] start to see more cracks on labor — I think that would that would definitely take on more importance than just the shutdown itself," said Gordon.
S&P 500 ends little changed Monday
The Dow closed slightly lower Monday.
The 30-stock average ticked down about 74 points, or 0.2%. Meanwhile, the S&P 500 inched up 0.01%, while the Nasdaq Composite gained 0.6%.
— Hakyung Kim
Growth funds underperform
Some notable growth stock funds were underperforming the major indexes during Monday's market slump, even as the Nasdaq Composite outperformed.
Some of the larger AI-funds were also slightly underperforming, with the First Trust Nasdaq Artificial Intelligence and Robotics ETF (ROBT) dipping about 1.2%.
— Jesse Pound
Banking survey shows volume and demand down with tighter credit conditions
Loan volume and demand both are deteriorating while credit standards, particularly in commercial real estate, are tightening, according to a Dallas Federal Reserve survey released Monday.
The closely watched view of the financial system showed that 42% of respondents reported loan volume decreasing while 49.3% saw demand down in September.
On a net basis of those reporting an increase against decrease, the level for volume dropped to -15.9 percentage points while the demand reading was at -34.4 percentage points. That compared to respective August readings of -2.8 and -27.1
Credit standards also showed signs of tightening across sectors, but particularly in the commercial space, which saw a net reading of -30.7 percentage points for banks that saw easing against tightening restrictions. The level was at -22.1 in August.
"Bankers remain pessimistic, with expectations for increasing loan nonperformance, decreasing loan demand and worsening business activity over the next six months," the Dallas Fed stated.
S&P 500 utilities slump as much as 5.5% intraday Monday as rates climb
S&P 500 Utilities slumped as much as 5.5% intraday Monday in their worst one-day slide since April 2020 as the yield on the benchmark 10-year Treasury note climbed as high as 4.701%, the highest in 16 years. Utilities, a capital-intensive business that's constantly rolling over debt which in this interest rate environment means a heavier cost burden eating into profits, are on pace for their lowest close since June 2020.
Utilities are far and away the day's worst performers in the S&P 500, with energy stocks trailing a distant second, down 2.1%.
"[Y]ields continue to wreak havoc with Utilities (XLU) having their worst day since Covid" on Monday, Jonathan Krinsky, chartered market technician at BTIG, wrote to clients.
Leading the way for the utilities are NextEra Energy, down 11.8%, AES Corp., lower by 6.3%, PG&E, losing 5.3%, NiSource, off by 5.2% and Dominion Energy, which is weaker by 5%. Every utility in the S&P 500 is lower Monday, none by less than 2.6%.
— Scott Schnipper, Gina Francolla, Michael Bloom
Fed Vice Chair Barr sees rates staying higher for 'some time'
Federal Reserve Vice Chair for Supervision Michael Barr said Monday that he sees higher interest rates staying in place for an extended period of time.
The top banking supervisor noted that there should be more focus on how long rates will need to remain elevated, instead of whether the central bank is going to push through one more hike before the end of the year.
"Given how far we have come, we are now at a point where we can proceed carefully as we determine the extent of monetary policy restriction that is needed," Barr told the Forecasters Club of New York in prepared remarks.
"In my view, the most important question at this point is not whether an additional rate increase is needed this year or not, but rather how long we will need to hold rates at a sufficiently restrictive level to achieve our goals. I expect it will take some time," he added.
Also during the speech, Barr expressed concern over higher-cost funding banks have had to take on this year to make up for lost deposits following the blowup of Silicon Valley Bank in March.
Majority of S&P 500 stocks trade down
Poor breadth is a bad sign for the S&P 500.
The broad index has slipped about 0.6% in the session. But less than 70 or the slightly more than 500 member stocks traded positively, meaning the lion's share of companies were down in the session.
Discover Financial was the best performer in the S&P 500, up more than 5%.
— Alex Harring
Start setting your portfolio up for 2024, NB Private Wealth's investment chief says
Investors should start setting up for 2024 as markets deal with a little more volatility, according to Shannon Saccocia, chief investment officer at NB Private Wealth.
"This fourth quarter could be a setup for complacency and in terms of what happens next," Saccocia said Monday on CNBC's "Halftime Report."
The investment chief was more positive on defensive sectors such as consumer staples and utilities, as well as health care stocks — all areas that underperformed this year. Utilities is off by about 20% this year, and consumer staples is off by roughly 7%. Health care is down by more than 6%.
"Think about the places in your portfolio that you probably are underweight, and add some to that," said Saccocia, adding, "Not that they'll necessarily be the best place to be in December of this year, but looking forward to 2024, we're going to digest these higher rates and reset to our new level. And this is where you're going to want to be when we start to see some of that consumer slowdown."
— Sarah Min
New ether futures ETFs hit the market
A wave of ether futures ETFs is hitting the market on Monday, expanding the ways investors can use ETFs to bet on cryptocurrencies.
The new funds include:
- BitWise Ethereum Strategy ETF (AETH)
- Bitwise Bitcoin and Ether Equal Weight Strategy ETF (BTOP)
- ProShares Ether Strategy ETF (EETH)
- ProShares Bitcoin & Ether Equal Weight Strategy ETF (BETE)
- Bitcoin & Ether Market Cap Weight Strategy ETF (BETH)
- VanEck Ethereum Strategy ETF (EFUT)
The launches could be interpreted as a positive signal about the SEC's approach to spot bitcoin funds, which have had their decision date pushed back by the regulator.
"I do think the approval and launch of these [ether futures] products is a positive sign that we're on the path to spot crypto products in the relatively near future," Bitwise CIO Matt Hougan said.
— Jesse Pound
UAW strikes impact on Detroit automakers' earnings
Detroit automakers are feeling some pain as the United Auto Workers strike enters its third week and additional plants are targeted.
"A ~2-week strike at Lansing Delta, Wentzville (already on strike) and the reported downtime at Fairfax could negatively impact GM's EBIT by an est. ~$0.2 billion, holding all-else-equal, including any additional impacts from the parts/distribution strike," Citi analyst Itay Michaeli wrote in a note Friday. Ford could see the same $0.2 billion hit from a two-week strike in Chicago and its Michigan Assembly plant, he added.
Meanwhile, Bank of America Securities estimates the cumulative impact on earnings before interest and taxes is $163 million for General Motors, $203 million for Ford and $187 million for Stellantis.
"Although there will likely be some volatility as production is taken down, it appears the ultimate increase in labor costs will likely be close to our expectations in January for a 25%-30% cumulative increase over four years," analyst John Murphy wrote in a Friday note. "In isolation, this would be about a 400-500bp headwind to operating margins."
— Michelle Fox
Warner Brothers Discovery looks like a buy as labor strife eases, Bank of America says
With the resolution of the writers strike and optimism about negotiations with the actors union, Warner Brothers Discovery is poised to exit this period of Hollywood labor strife with little long-term damage, Bank of America analyst Jessica Reif Ehrlich said in a note to clients Monday.
"While the strikes provided a near term benefit to FCF, we are encouraged the industry can return to work, especially for WBD which is among the largest content creators in the industry. For WBD, we expect the company to maintain their recently revised guidance, as it may take several weeks/months to fully ramp content p