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US stocks finished near the flat line on Monday, with markets taking a breather after posting back-to-back weekly gains. Market participants largely did not react to Moody’s decision to cut the country’s credit outlook.
Focus This week will feature earnings reports from major retailers, inflation data and speakers from the Federal Reserve.
Wall Street’s major averages opened slightly lower and then fluctuated for most of the day. The tech-heavy Nasdaq Composite (IND COMP.) closed 0.22% less at 13,767.74 points. The S&P 500 Benchmark Index (SP500) fell 0.08% to settle at 4,411.52 points, while the frontline Dow (dji) added 0.16% to finish at 34,337.87 points.
Of the 11 S&P sectors, six closed in the red, led by utilities and real estate. Energy and Health led the winners.
Treasury yields were mixed. The 30-year (US 30-year) yield rose 2 basis points to 4.75%, while the 10-year (US 10-year) yield was little changed at 4.64%. The more rate-sensitive short-term 2-year yield (US2Y) fell 3 basis points to 5.03%.
See how Treasury yields have performed across the curve on the Seeking Alpha bond page.
Tuesday’s October consumer inflation report will be one of the highlights this week. Economists expect a monthly decline in the headline figure, and traders expect the data to continue to support the argument that there will be no further rate hikes.
The S&P 500 (SP500) on Friday posted a more than 1% gain for the week, a strong follow-up to its best week of the year recorded on November 3. The gains have been driven primarily by a general consensus that the Federal Reserve is hiking rates. Fed chief Jerome Powell’s hawkish comments at an International Monetary Fund conference last Thursday weighed on sentiment enough for the S&P to snap an eight-day winning streak.
Notably, Moody’s on Friday afternoon cut its U.S. credit rating outlook to negative, citing increased downside risks to the country’s fiscal strength. The agency also raised the specter of political polarization, citing another possible government shutdown as a factor.
“Ahead of a pivotal CPI inflation report, stocks and bonds remained stuck around the flat line at today’s close after overcoming an early morning decline. After an impressive two-week rally, investors made Ignoring the downgrade of Moody’s US credit outlook to ‘Negative’ is an interesting development,” Ahan Vashi, investment group leader at The Quantamental Investor, told Searching Alpha.
“With oil prices falling in recent weeks, the headline CPI figure is likely to show moderation in tomorrow’s report; however, investors should focus on the core CPI data as a further acceleration could However, given the high valuations of stock markets (little or no risk premium is offered), prudent investors should continue to proactively manage risk in this world of interest rates “higher for longer,” Vashi added.
As for the third-quarter earnings season, most of it is already over, but investors will still be watching results from retail giants like Walmart (WMT), Home Depot (HD), and Target (TGT). They will also focus on 13F filings – regulatory disclosures by major funds about their quarterly changes in share ownership.
Among Friday’s earnings-related moves, meat processor Tyson Foods (TSN) fell on disappointing guidance.
