Wall St slips as service data scares investors about Fed rate hikes

  • Activity in the US service sector increased in November
  • Tesla is reducing the production plan for the Shanghai plant for December
  • All S&P 500 sectors are down, with energy stocks taking a hit
  • Indexes down: Dow 1.4%, S&P 1.79%, Nasdaq 1.93%

Dec 5 (Reuters) – U.S. markets ended lower on Monday as investors, fearful of better-than-expected data from the services sector, reassessed whether the Federal Reserve could raise interest rates for longer, while Tesla shares fell on production reports. It was cut in China.

The electric car maker ( TSLA.O ) fell 6.4% in December at its Shanghai plant on plans to cut Model Y production by more than 20% from the previous month.

That weighed on the Nasdaq, where Tesla was one of the biggest decliners, and sent the tech-heavy index to its second straight decline.

Overall, indexes were hurt as U.S. service industry activity rose unexpectedly in November, providing more evidence of underlying momentum in the economy as employment rebounded.

The data came after a survey last week showed stronger-than-expected job and wage growth in November, challenging hopes that the Fed will slow the pace and intensity of rate hikes amid recent signs of inflation.

“Today is a bit of a response to Friday, as the jobs report showing that the economy is not slowing that much contradicts (Chairman Jerome) Powell’s message on Wednesday afternoon,” said Bernard Drury, CEO. Drury Capital, citing comments made by the head of the Federal Reserve, said it is time to slow the pace of future rate hikes.

“We’re back in inflation-fighting mode,” Drury said.

Investors see an 89% chance that the US central bank will raise interest rates by 50 basis points next week to 4.25%-4.50% and reach 4.984% in May 2023.

The rate-setting Federal Open Market Committee is holding its final meeting of a volatile year on Dec. 13-14 as the central bank attempts to stem a multi-decade rise in inflation with record interest rate hikes.

“Exchange” is seen at the entrance to the New York Stock Exchange (NYSE) on Wall St., March 29, 2021. REUTERS/Brendan McDermid/File Photo

Aggressive policy tightening has also fueled concerns about an economic downturn, with JPMorgan, Citigroup and BlackRock among those who believe a recession will occur in 2023.

The Dow Jones Industrial Average (.DJI) fell 482.78 points, or 1.4%, to 33,947.1, the S&P 500 (.SPX) lost 72.86 points, or 1.79%, to 3,998.84, the Nasdaq Composite (Nasdaq.IX) fell 221.56 points, or 1.93%, to end at 11,239.94.

In other economic data this week, investors will also be watching weekly jobless claims, producer prices and the University of Michigan consumer sentiment survey for more clues about the health of the US economy.

Energy (.SPNY) was among the biggest losers in the S&P sector, down 2.9%. U.S. natural gas futures fell more than 10% on Monday as the outlook dimmed due to mild weather forecasts and a delayed restart of the Freeport liquefied natural gas (LNG) export plant.

EQT Corp ( EQT.N ), one of the largest U.S. natural gas producers, was the biggest decliner in the energy index, closing down 7.2%.

Financials (.SPSY) were also hit hard, down 2.5%. While bank profits are typically boosted by rising interest rates, they are also vulnerable to concerns about bad loans or slowing credit growth in an economic downturn.

Meanwhile, apparel maker VF Corp ( VFC.N ) fell 11.2% — its biggest one-day drop since March 2020 — after CEO Steve Rendle announced his sudden retirement. The firm, which owns names such as outdoor clothing brand The North Face and sneaker maker Vans, also cut its full-year sales and profit forecasts, blaming weaker-than-expected consumer demand.

In the US, the stock traded 10.78 billion shares over the past 20 trading days, compared to an average of 11.04 billion shares for the full session.

The S&P 500 recorded six new 52-week highs and four new lows; The Nasdaq Composite recorded 105 new highs and 133 new lows.

Reporting by Shubham Batra, Ankika Biswas, Johann M Cherian and Devik Jain in Bengaluru and David French in New York; Edited by Anil D’Silva, Shounak Dasgupta, and Lisa Shumaker

Our standards: Thomson Reuters Trust Principles.

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