The stock market closed lower on Monday after Fed officials made separate speeches suggesting inflation could persist into 2024 and that financial markets may be underestimating the number of rate hikes. Oil and real estate stocks took the brunt of the declines. apple ( AAPL ) shares fell after a report that iPhone production would fall short of estimates.
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The Nasdaq composite fell 1.6%, while the S&P 500 fell 1.5%. The Dow Jones Industrial Average fell 1.5%. The small-cap Russell 2000 index fell 2%.
Volume on the NYSE and Nasdaq rose at the same time on Friday, early data showed. But remember, Friday was half session.
The yield on the benchmark 10-year Treasury note fell one basis point to 3.68%. Crude oil rose 0.5% to $76.65/barrel.
Among sectors, the largest decline was in real estate. The S&P Real Estate Select Sector ETF ( XLRE ) fell 2.8%.
The stock market closes lower due to comments from the Fed
New York Fed President John Williams said he expects inflationary pressures to ease next year, but expects inflation to be above 3% by the end of next year. He said the Federal Reserve would continue to hold off because rates could still fall to levels above the Fed’s 2% target.
“There’s still a lot of work to be done,” Williams said in a speech to be delivered on Monday.
In another speech on Monday, St. Louis Fed President James Bullard said the Fed is banking on an economic slowdown to help curb demand and inflation.
In a speech that echoed former Fed Chairman Alan Greenspan’s 1996 “irrational exuberance” speech, Bullard said financial markets were likely in denial about the number of rate hikes left in the current tightening cycle.
“The Fed is likely to raise rates by 0.50% at its December meeting and may cut further if the economy begins to slow,” Jeffrey Roach, chief economist at LPL Financial, said in response to Bullard’s comments. “High inflation still worries the Fed more.”
The probability that the Federal Reserve System will raise the interest rate by 0.5% or 50 basis points at its meeting in mid-December fell to 67.5%. The odds for a 75-basis-point hike rose to 32.5%, according to the CME FedWatch tool.
Brick-and-mortar sales rose 2.9% on Black Friday, according to retail analytics provider Sensormatic Solutions. The National Retail Federation expects holiday sales to grow between 6% and 8% in 2022. Online shoppers didn’t wait for Cyber Monday sales, with e-commerce receipts up 2.3% year-over-year to $9.12 billion.
Chinese stocks fell on Monday, dragging the US market lower after protests in China over the weekend. The protesters were protesting the Chinese government’s strict Covid-19 lockdowns. The Hong Kong Hang Seng index fell by 1.6%, and the Shanghai index fell by 0.8%. But the iShares MSCI China ETF ( MCHI ) rose 1.1% and the iShares China Large-Cap ETF ( FXI ) rose 0.9%.
Apple has been hit by reports of low iPhone production
According to reports, Apple iPhone Pro production could be reduced by 6 million units due to civil unrest and Covid restrictions in China. Shares fell 3.1%.
Bloomberg reports that unrest at the Foxconn factory in Zhengzhou could lead to a shortage of 6 million units of the iPhone Pro in 2022. According to sources, this figure could increase if the Covid restrictions are extended for a few more weeks. The Zhengzhou factory produces the vast majority of iPhone 14 Pro and Pro Max smartphones.
AAPL stock fell below its 50-day moving average. Compared to the S&P 500, Apple’s performance has been declining since September.
Dow Jones stock and aircraft manufacturer Boeing (BA) fell 3.7% on Monday, falling below the 5% buy range. According to IBD MarketSmith chart analysis, the stock first breached the 173.95 buy point in the cup base after the crash on Nov. 10. The buying area is at 182.65.
Despite the Chinese riots, Pinduoduo Shares of MarketSmith pattern recognition ( PDD ) rose 12.7% after Monday’s earnings, clearing a large cup base. But the deep base, the extension of the PDD above the 50-day line and the overall China risk are concerns.
Pinduoduo’s Q3 earnings rose 256% year-over-year, handily beating views and well above Q2’s 157% growth. The e-commerce company’s revenue rose 65% to $4.99 billion, marking the third straight quarter of growth.
Monday’s Stock Market: Construction Supplier Doesn’t Stop Real Estate Demolition
But real estate stocks fell Builders First Source (BLDR) was an exception.
The building products and prefab home components supplier rose 2.5% on Monday after increasing its share buyback program by $1 billion. The increase authorizes $1.5 billion worth of shares to be repurchased. That represents 16.8% of the $8.91 billion market capitalization as of Friday’s close.
Real estate stocks struggled against Tuesday’s Case-Shiller home price index, which economists expected to show a 1.3% decline. Housing data has been weak for months.
Axsome Therapeutics (AXSM) rose 31.5% after the Alzheimer’s treatment met its Phase 3 study goals. The biotech is working on a treatment for Alzheimer’s patients who experience agitation. In a late-phase study, AXS-05 was superior to placebo in delaying or preventing relapses in agitated patients. The stock rose above the 66.25 buy point of a cup handle on heavy volume.
Among other hot biotech stocks, Catalyst Pharmaceuticals (CPRX) fell, and the stock fell below a 16.76 buy point from last week’s cleared handle cup base. This market leader was last Monday’s IBD Stock of the Day and is also a member of the IBD Tech Leader and IBD 50 Growth Stock to Watch lists.
The Innovator IBD 50 ETF (FFTY) fell 2.5%, as did oil and solar stocks. PBF Energy (PBF), Shoals Tech (SHLS), EOG Resources (EOG) and Civitas Resources (CIVI).
Follow Michael Molinski on Twitter @IMmolinski
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