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.
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
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.
Cathie Wood's Flagship Ark Innovation ETF is down 2.7% on the day, and the Invesco Solar ETF has shed 1%.
Two smaller thematic funds that are struggling are the iShares Cybersecurity and Tech ETF and the Roundhill Sports Betting and Gaming ETF, which are both down more than 2%.
— Jesse Pound
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.
—Carmen Reinicke
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.
—Carmen Reinicke
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
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.
—Jesse Pound
Pharmaceutical companies Immunic and scPharmaceuticals were moving with unusually heavy volumes during day trading Monday.
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
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.
—Jeff Cox
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.
—Carmen Reinicke
JPMorgan CEO Jamie Dimon said Monday that the U.S. economy is likely to fall into recession during the spring or summer of 2023.
Dimon told CNBC's Julianna Tatelbaum that persistent inflation, rising interest rates and the ongoing war in Ukraine were all factors hurting economies of Europe and the U.S.
"These are very, very serious things which I think are likely to push the U.S. and the world — I mean, Europe is already in recession — and they're likely to put the U.S. in some kind of recession six to nine months from now," Dimon said.
Dimon said that there is uncertainty about how bad a recession will be and is not predicting just a mild dip that some bullish investors are looking for.
"It can go from very mild to quite hard and a lot will be reliant on what happens with this war. So, I think to guess is hard, be prepared," he said.
— Jesse Pound
These companies are making headlines midday:
Check out more midday movers here.
— Tanaya Macheel
Stocks slumped Monday and were in the red at midday trading, though off the lows of the day.
The Nasdaq Composite fell more than 1% to a new low Monday, but regained some of those losses to trade down about 0.94% at noon in New York. The S&P 500 shed 0.56% and the Dow Jones Industrial Average fell nearly 48 points, or 0.16%.
-- Carmen Reinicke
In the upcoming earnings season, the kind of guidance that companies give about what they expect in the future is more important than what they report for the third quarter, according to Bank of America equity strategist Savita Subramanian.
"S&P 500 3Q EPS estimates have fallen 7% since July, more than the typical 4% cut into earnings," Subramanian wrote in Sunday note. "Nine of the 11 sectors saw downward revisions to earnings, where Energy was the only sector with meaningful upward revisions."
While overall economic data have help up in the third quarter, many indicators that Bank of America tracks suggest that a miss is likely for earnings.
"Our 3Q forecast of $50 (+2% YoY) is 1% below consensus' $55.58 (+3% YoY)," Subramanian wrote. "But guidance is likely to matter most, and we see substantial downside risk to 4Q and 2023."
In addition, the bank's corporate misery is high given increased margin pressure, hits to demand and bloated inventories.
They'll be watching for signs of further economic weakness going forward.
"Recession is top of mind for investors, and consumer weakness was evident during 2Q earnings," wrote Subramanian. "Mentions of weak demand and layoffs will be closely watched. We calculate FX was a 3ppt hit to 3Q sales growth from translation, the biggest headwind since 2015.
—Carmen Reinicke
The Nasdaq Composite and Nasdaq 100 both fell to their lowest levels since September 2020 on Monday. Each index is now down more than 32% for the year.
Semiconductor stocks are one of the main sources of weakness on Monday, with Lam Research down more than 8% and Marvell off by 7%.
Chinese internet stock Pinduoduo is the worst performer in the Nasdaq 100, falling more than 11%.
— Jesse Pound, Gina Francolla
Famed investor Paul Tudor Jones believes the U.S. economy could already be in a recession amid the Fed's aggressive tightening cycle.
The founder and chief investment officer of Tudor Investment said there is a specific recession playbook to follow for investors navigating the treacherous waters, and history shows that risk assets have more room to fall before hitting a bottom.
"Most recessions last about 300 days from the commencement of it," Jones said. "The stock market is down, say, 10%. The first thing that will happen is short rates will stop going up and start going down before the stock market actually bottoms."
— Yun Li
After remote school and work during the Covid pandemic created a surge in demand for iPads, Apple is likely to see year over year declines in iPad shipments for 2022 and 2023, according to Bank of America.
Analyst Wamsi Mohan said in a note to clients on Monday that iPad sales could fall to pre-pandemic levels next year.
"Although the device continues to attract a high proportion of new users (~50% of purchasers in any qtr. even pre-pandemic were new to the device), replacement rates remain muted. We see this as a function of the category being in structural decline," the note said.
On the bright side, Apple could see a rebound in 2024 as iPads purchased early in the pandemic are due for an upgrade, Mohan said.
Shares of Apple were down 0.7% in morning trading. Bank of America has a neutral rating on the tech stock.
— Jesse Pound
A selloff in semiconductor stocks brought two key industry exchange-traded funds to their lowest levels in 52 weeks on Monday.
The slump comes amid a shift in U.S. policy that limits companies from exporting to China.
Both the iShares Semiconductor ETF and the Vaneck Semiconductor ETF fell to their lowest levels since November 2020. Shares of LAM Research, Marvell, KLA and AMAT all down over -4% so far today, dragging the ETFs lower.
-- Carmen Reinicke, Gina Francolla
December wheat futures rallied 4.6% Monday morning to a high of $9.245 a bushel (60 pounds of wheat) after Russian missile attacks struck more than 10 cities in Ukraine overnight, raising concern that exports will be hurt.
The Teucrium Wheat Fund is ahead 3.3% premarket while the Invesco DB Agriculture Fund is higher by 1.3%.
December gold and silver contracts were trading at one-week lows, with the VanEck Gold Miners ETF Gold ETF and Global X Silver Miners ETF down between 1.3% and 1.8% in early trading. First Majestic Silver, Harmony Gold and Hecla Mining fell about 2%.
The dollar index is on pace for a fourth straight advance, with the euro falling as low as 0.968 against the dollar.
— Scott Schnipper, Gina Francolla
The strength of the U.S. dollar is likely to be an important point coming up in earnings, according to Chris Larkin, managing director of trading at E*Trade from Morgan Stanley.
"The last earnings season of the year is kicking off following a week where—in typical 2022 trading fashion—there was no shortage of eyebrow-raising price moves," Larkin wrote in a Monday note. "Despite pulling back to a two-week low last Tuesday, the US dollar index bounced to end last week up more than 17% for the year, and not too far below its 20-year high."
"We may hear more in the coming weeks on the pressures an exceptionally strong dollar can have on US exports and thus, earnings of US companies, but dollar strength could also play a role in getting the Fed to "back off" from its tightening policy," he added. "Though even if continued dollar strength eventually contributes to the Fed switching from raising rates to cutting them, the timing of such a pivot remains uncertain, and might not change the downward trajectory of corporate earnings."
—Carmen Reinicke
CNBC Pro subscribers can get the lowdown on the biggest calls of the day coming out of Wall Street.
Calls from Monday and over the weekend that investors are taking note of include:
Read the highlights here.
— Alex Harring