The stock market closed lower on Monday after Fed officials made separate speeches across the country that inflation could last until 2024 and that financial markets could underestimate the number of rate hikes . Oil and real estate stocks were the main victims of the declines. Apple (AAPL) lost ground after a report that iPhone production could be below estimates.
The Nasdaq composite closed down 1.6% and the S&P 500 fell 1.5%. The Dow Jones Industrial Average fell 1.5%. The Russell 2000 Small Cap Index fell 2%.
Volume rose on the NYSE and Nasdaq from the same time on Friday, early data showed. But keep in mind that Friday was a half session.
The yield on the benchmark 10-year Treasury slipped one basis point to 3.68%. Crude oil rose 0.5% to $76.65 a barrel.
The largest decline among sectors was real estate. The S&P Real Estate Select Sector ETF (XLRE) fell 2.8%.
Stock market closes lower on Fed comments
New York Fed President John Williams said he expects inflationary pressures to ease over the next year, but said he expects inflation to be above 3% by the end of next year. He said the Federal Reserve will continue to have its work cut out as prices could slow to levels still above the Fed’s 2% target.
“There’s still work to be done,” Williams said in a speech due Monday.
St. Louis Fed President James Bullard said in another speech Monday that the Fed is banking on an economic slowdown to help rein in demand and inflation.
In a speech that echoed former Fed Chairman Alan Greenspan’s speech of “irrational exuberance” in 1996, Bullard said financial markets are likely in denial about the number of interest rate hikes remaining in the current tightening cycle.
“The Fed will likely raise rates by 0.50% at the December meeting and could slow the pace of the hikes further if the economy starts to falter,” said Jeffrey Roach, chief economist for LPL Financial, in response to the comments. Bullard comments. “High inflation is still the Fed’s biggest concern.”
The likelihood of the Federal Reserve raising rates by 0.5%, or 50 basis points, at its mid-December meeting has fallen to 67.5%. The odds of a 75 basis point hike have risen to 32.5%, according to CME tool FedWatch.
Black Friday bricks and mortar sales rose 2.9%, according to retail analytics provider Sensormatic Solutions. The National Retail Federation expects 2022 holiday sales to grow between 6% and 8%. Online shoppers didn’t wait for Cyber Monday sales, pushing e-commerce revenue to $9.12 billion, up 2.3% from 2021.
Chinese stocks fell on Monday, initially dragging the US market down after a weekend of protests that erupted across China. Protesters were challenging the strict Covid-19 containment measures imposed by the Chinese government. Hong Kong’s Hang Seng index fell 1.6% and the Shanghai index 0.8%. But the iShares MSCI China ETF (MCHI) rose 1.1% and the iShares China Large-Cap ETF (FXI) gained 0.9%.
Apple drops on low iPhone production reports
Apple iPhone Pro production could be 6 million units lower due to civil unrest and Covid restrictions in China, according to reports. The stock closed down 3.1%.
Bloomberg reported that unrest at the Foxconn factory in Zhengzhou could lead to a shortfall of 6 million units in iPhone Pro production in 2022. And that number could increase if Covid restrictions are extended for a few more weeks, according to sources. The Zhengzhou factory manufactures the vast majority of iPhone 14 Pro and Pro Max smartphones.
AAPL stock fell below the 50-day moving average. Apple’s performance against the S&P 500 has been declining since September.
Stock and aircraft maker Dow Jones Boeing (BA) slid 3.7% on Monday, dipping below its 5% buy range. The stock first crossed a buy point of 173.95 in a cut basis after a breakout on Nov. 10, according to IBD MarketSmith’s chart analysis. The buy zone peaks at 182.65.
Despite the Chinese unrest, Pinduo-duo (PDD) shares soared 12.7% on Monday after earnings, wiping out a large-volume cup base, according to MarketSmith’s pattern recognition. But the deep base, DDA extension from the 50-day line and general China risk are concerns.
Pinduoduo’s Q3 earnings were up 256% year over year, easily beating views and well above Q2’s 157% growth. The e-commerce company’s revenue jumped 65% to $4.99 billion, accelerating growth for a third straight quarter.
Stock market Monday: Construction supplier ignores drag in real estate
Property values fell across the board, but FirstSource Builders (BLDR) was an exception.
The supplier of building products and prefabricated home components rose 2.5% on Monday after increasing its share buyback program by $1 billion. The increase gives the authorization to repurchase 1.5 billion dollars of shares. That’s 16.8% of the $8.91 billion market capitalization as of Friday’s close.
Real estate stocks are struggling ahead of Tuesday’s Case-Shiller home price index, which economists said is expected to show a 1.3% decline. Housing data has been weakening for months.
Axsome therapeutics (AXSM) soared 31.5% after its treatment for Alzheimer’s disease met the goals of a phase 3 study. The biotech is working on a treatment for Alzheimer’s patients who suffer from agitation. In the final phase study, the drug called AXS-05 outperformed a placebo, delaying or preventing relapses in agitated patients. The stock hovered above the 66.25 one-handle cup buy point in heavy volume.
Other hot biotech stocks include Pharmaceutical catalyst (CPRX) reversed lower and the stock fell back below a buy point of 16.76 from a cup base with a handle cleared last week. 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 (FFTY) ETF fell 2.5%, dragged down by oil and solar stocks like PBF Energy (PBF), Shoal technology (SHLS), EOG Resources (EOG) and State resources (citizens).
Follow Michael Molinski on Twitter @IMmolinski
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