U.S. stocks finished near session lows after giving up all of their earlier gains on Monday, as investors evaluated a mixed batch of views from Federal Reserve officials and appeared to lose faith in an extended rally on the back of last week’s cooler-than-expected inflation data.
How stocks traded
- The Dow Jones Industrial Average DJIA ended down by 211.16 points, or 0.6%, at 33,536.70 after erasing all its earlier gains in the final hour of New York trading. The Dow had been up more than 200 points.
- The S&P 500 SPX, -0.89% finished down by 35.68 points, or 0.9%, at 3,957.25.
- The Nasdaq Composite closed down by 127.11 points, or 1.1%, at 11,196.22.
Stocks had risen sharply late last week, with the Nasdaq Composite advancing 9.4% in two days to cement its biggest weekly advance since at least March, while the S&P 500 clinched its best such performance since June.
What drove markets
Stocks lost upward momentum late Monday as investors appeared to give up on the notion that last week’s rally, inspired by softer-than-anticipated October inflation data, might still have some more room to run.
Signs of cooling inflation in Thursday’s consumer prices data had bolstered hopes that the Federal Reserve may not need to continue raising borrowing costs at such an aggressive pace. The Fed’s No. 2 official, Lael Brainard, seemed to confirm as much, by telling Bloomberg in an interview that it may be appropriate soon for policy makers to slow down their current pace of rate hikes.
“We have to take a look at what the market has done over the last couple of weeks,” said Edward Moya, senior market analyst for the Americas at OANDA Corp. “Equities have clearly stabilized and it’s all because of expectations that the Fed is about to end its tightening cycle after February.”
“Now we are at a weird stage where investors need to see inflation soften, which means you are not going to see strong positioning until we get the next inflation report,” Moya said via phone. “That’s going to make it a choppy environment for stocks until there’s further clarity if the Fed is done with raising rates or will have to continue. Officials need to see labor-market weakness and we are finally getting signs of that, too.”
Jim Reid, head of thematic research at Deutsche Bank DB, -1.41%, and others point out in a note to clients that the inflation report wasn’t the only factor that helped set up stocks and other risk-sensitive assets for a rebound earlier in the day.
“Impressive levels of European gas storage due to the weather, very short positioning in US equities, mid-terms being out the way, positive seasonals, less event risk in the Russian/Ukraine war, and now softer U.S. inflation than expected are all helping,” Reid said.
Some of the worst-hit technology stocks rallied as investors welcomed signs that they may be reining in their profligate spending. Meta Platforms META, +1.06%, for example, finished up by 1.1% as it cuts its staff count.
Government bond markets resumed trading on Monday, after being closed Friday for the Veterans Day holiday, with the yield on the 10-year note TMUBMUSD10Y, 3.860% up 3.7 basis points at 3.87%.
Over the weekend, Fed Gov. Christopher Waller said financial markets seem to have overreacted to the softer-than-expected October consumer price inflation data last week, and that “we’ve got a ways to go.”
“Last week’s euphoria has failed to follow through into this week. Inflation-data-inspired optimism that the Fed could be less aggressive hiking rates was met with a reality check from a slew of Fed speakers today, who reminded the market that the battle against inflation was far from over,” said Fiona Cincotta, senior market analyst for City Index in London.
“The reality is that one cooler core inflation print by no means constitutes a new trend. Patience is needed for further confirmation that core prices are falling on an ongoing basis,” Cincotta wrote in an email to MarketWatch. With October’s producer-price index out on Tuesday, “inflation is likely to remain a hot topic over the coming days.”
Single-market movers
- Moderna Inc. announced both of its new Covid-19 boosters produced a better antibody response against the BA.4 and BA.5 variants in a Phase 2/3 clinical than the company’s original booster. Moderna shares MRNA, +4.57% finished up by 4.6%.
- Chinese tech names were up sharply on more news about Covid-19 restrictions waning. The KraneShares CSI China Internet ETF KWEB, +1.58% ended up by 1.6%, while American depositary receipts of Baidu Inc. BIDU, +2.22% and JD.com JD, +3.92% also closed up, along with those of other Chinese megacap tech names like Alibaba BABA, +0.79%.
- Amazon.com Inc. stock AMZN, -2.28% ended down by 2.3% after the New York Times reported that the company intends to lay off about 10,000 corporate and technology workers as economic conditions continue to hit Big Tech.
— Jamie Chisholm contributed to this article.
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