U.S. stocks fell Tuesday, adding to an early-week rout as investors digested economic warnings from bank heavyweights and mulled the impact of upcoming Federal Reserve policy.
The S&P 500 (^GSPC) sank 1.4%, while the Dow Jones Industrial Average (^DJI) was down 1%, or more than 350 points. The technology-heavy Nasdaq Composite (^IXIC) fell 2%.
Wall Street failed to recover from a rout in Monday’s session, when stocks sunk while investors pored over the first releases in a week full of economic data. Overall, the S&P 500 had its sixth down day in the last seven trading sessions, according to Bespoke Investment Group.
On Tuesday, the biggest Wall Street bank executives struck a downbeat tone for next year as inflation hits consumer demand. Bank of America CEO Brian Moynihan told investors at a Goldman Sachs financial conference that Bank of America’s research shows “negative growth” in the first part of 2023, but he added that the contraction will be “mild.”
Separately, Goldman Sachs CEO David Solomon told Bloomberg that he sees economic growth slowing and smaller bonuses and even possible job cuts on the horizon.
Economic data readings have pointed to continued resilience in different pockets of the economy, however, prompting intense market fixation around the risk that the Federal Reserve will continue to raise interest rates throughout the next year.
Fed officials, including Chair Jerome Powell, have largely suggested the central bank will downshift to a half-point move at their meeting next week after four consecutive 75-basis-point increases. But last week’s employment report showed strong job gains and robust wage growth, the opposite of what the Fed would like to see in its battle against inflation.
A smaller increase would indicate a new phase for the central bank’s tightening campaign, but elevated wage pressures could lead to more officials raising their benchmark federal funds above 5% next year, which is currently anticipated by Wall Street.
“In light of the various releases, expectations of the Fed terminal rate priced for May 2023 moved up by 9.5 basis points on the day to 5.01%, crossing the 5% threshold again,” Jim Reid and colleagues at Deutsche Bank wrote in an early morning note Tuesday.
“That’s a noticeable shift from where it was just before Friday’s jobs report, when it hit a low of 4.83%, and means that most of the moves lower after Chair Powell’s Wednesday speech have now reversed,” he added.
Officials will get another read on inflation on December 13, the first day of the Fed’s two-day policy meeting, when the Labor Department releases the Consumer Price Index for November.
December has gotten off to a rockier start in the markets as investors “unwind of consensus macro positions this year, which has ensued since the cool CPI print mid-November,” according to Mike Gormley, Equity Institutional Sales at JPMorgan.
In commodity markets, oil prices continued to trade lower Tuesday, with WTI crude at $74.43 per barrel. Oil’s recent tumble has come even amid recent moves by OPEC and its Russian-led allies to stay the course on production cuts and as China officials have tentatively eased COVID restrictions that have eroded consumption from the world’s largest importer.
In bond markets, the yield on the U.S. 10-year Treasury note was back down at 3.52% on Tuesday. The dollar ticked up.
In corporate news, PepsiCo (PEP) plans to eliminate hundreds of jobs at the headquarters of its North American snacks and beverages divisions, The Wall Street Journal reported. The move follows other companies, including Walmart (WMT) and Ford (F), that have trimmed jobs of white-collar workers amid economic uncertainty.
In other moves:
- GitLab (GTLB) shares rose 9.5% after the company posted third-quarter earnings that beat Wall Street expectations and raised forecast revenue in 2023.
- Fanatics raised roughly $700 million from a series of new and existing investors in a round that values the company at $31 billion, the Wall Street Journal reported.
- Apple (AAPL) plans to scale back ambitious self-driving plans for its future electric vehicle and postponed the car’s target launch date, Bloomberg reported.
And on the politics front, Georgia voters are casting ballots Tuesday in another runoff race that will determine if Democratic Sen. Raphael Warnock can stiff-arm Republican challenger Herschel Walker. Though Democrats have already clinched control of the Senate, both parties have poured heavy resources into the race.
“Senate seats only come up every 6 years with just a third of the chamber elected each time, a victory for either side would make it easier for them to gain control in the 2024 and 2026 elections as well, since that Georgia seat wouldn’t be up for election again until 2028,” Reid and colleagues at Deutsche Bank wrote in a note.
Meanwhile, President Joe Biden visited TSMC’s (TSM) Arizona plant on Tuesday as the Taiwanese chipmaker said it would triple its planned investments there to $40 billion. Joining Biden in his visit were Apple CEO Tim Cook, TSMC founder Morris Chang, the head of chipmaker Micron Technology Inc. (MU) CEO Sanjay Mehrotra, and NVIDIA (NVDA) founder and CEO Jensen Huang, and among others, the White House said.
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