Business

Dow drops more than 400 points as strong data fuels worries the Fed will need to be tougher


US stocks tumbled on Monday after hotter-than-expected data on the US services sector added to concerns that the Federal Reserve may need to be more aggressive in its fight against inflation. , despite concerns about an impending recession.

How are stocks trading?
  • Dow Jones Industrial Average DJIA fell 433 points, or 1.3%, to 33,996.

  • S&P500
    SPX,
    -1.88%

    fell 66 points, or 1.6%, to 4,006.

  • Nasdaq Composite
    COMPUTER,
    -8.09%

    fell 196 points, or 1.7%, to 11,266.

Stocks ended mixed on Friday, although they posted gains last week, following a strong November jobs report. raising fears that inflation may not be beaten so easily.

What is driving the market?

Strong wage growth numbers Friday release was followed on Monday by strong data for the US services sector – both of which helped fuel concerns that a Federal Reserve interest rate hike, coupled with balance sheet easing Its modest accounting, does not have much impact on the economy. tight US labor market.

The ISM barometer of US business conditions in the services sector was stronger than expected, rose to 56.5% in November, a strong sign that the US economy is still expanding at a steady pace.

The ISM services numbers “surprised the upside, showing that the economy is still on a long-term sustainable path and that the Fed will have to slow the economy more than expected in 2023,” said Bill Adams, chief economist at ISM. based in Dallas. Comerica Inc. chief economist.
CMA,
-6.09%
,
talk over the phone.

In other economic data, the US S&P Global Services PMI last November rose from 46.1 to 46.2, but remained in contraction territory.

November jobs data released on Friday showed average hourly wages rose more than 5% in the year to November, beating economists’ expectations and stoking fears that an increase Strong wage growth will continue to drive inflation, market strategists said.

Worries about a more aggressive Fed also give a boost Treasury yields are higher, adding more pressure on stocks. The 10-year yield rose 8 basis points to 3.59% on Monday. Treasury yields move inversely to prices and yields have plummeted over the past month, driven by expectations of a change in the pace of Fed rate hikes.

In other market news, the sign that the Chinese government is easing its COVID restrictions helped Hong Kong’s Hang Seng index
HSI,
+4.51%

ended with a 4.5% advance.

See more: China’s ADRs and casino operators protest on signs of COVID easing

Meanwhile, Crude oil prices fell on Monday, a day after the decision by OPEC and its allies on Sunday to keep production quotas in place.

Falling stock prices helped boost the CBOE Volatility Index
VIX,
+10.55%
,
also known as VIX, back above 20 on Monday. Jonathan Krinsky, director of market engineering at BTIG, said in a note to clients, the volatility gauge has plummeted in recent weeks as stocks rallied, potentially signaling complacency that eventually can also hurt the stock.

“SPX once again finds itself at downtrend resistance around 4,100 with the VIX below 20. The 10-year yield is back at key support at 3.50%. We expect both of these levels to hold, but wonder if yields will break below 3.50% if it is seen as equity-friendly like the move from 4.25% to 3.50%?” Krinsky said.

Concentrated companies
  • Tesla Corporation
    TSLA,
    -6.49%

    shares fell 5.9% after reports of production cuts at its factory in Shanghai, although the electric vehicle maker has denied the reports.

  • GameStop Corp.’s Class A stock.
    GME,
    -7.30%

    down 7.1% in front of the company third quarter results, will be released after the market close on Wednesday. Analysts are looking for a narrowing loss from the video game retailer.

  • Shares of U.S. airlines and aircraft manufacturers traded higher on Monday, going against the overall trend of stocks. Boeing Co
    FATHER,
    +1.81%

    and United Airlines Holdings Inc.
    UAL,
    +1.75%

    among the best-performing stocks in the S&P 500, up 1.6% and 1.1%, respectively.

–Jamie Chisholm contributed reporting to this article.

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