Filippo Bacci
On Monday, U.S. stocks plunged into the red, while Treasury yields rose on bond selloffs. The moves came after a massive rally that saw Wall Street's benchmark S&P 500 (SP500) hit a 2023 closing high on Friday.
with the federal Reserved in its lock-up period this week ahead of its final monetary policy committee meeting of the year, market participants will focus on a host of labor market data over the next few days.
The tech-heavy Nasdaq Composite (IND COMP.) led the losses among the three major averages, falling 1.09% to 14,149.32 points in midday operations. The S&P 500 (SP500) was down 0.69% at 4,563.15 points, while the Dow Jones (dji) was down 0.34% at 36,123.05 points.
Of the 11 S&P sectors, eight were in the red, with technology and communications services the biggest losers. Utilities, healthcare and consumer staples were the three winners.
Treasury yields were higher. The 30-year yield (US30Y) rose 3 basis points to 4.45%, while the 10-year yield (US10Y) rose 7 basis points to 4.30%. The more rate-sensitive short-term 2-year yield (US2Y) rose 8 basis points to 4.65%.
View live data on Treasury yields across the curve on the Seeking Alpha bonds page.
The S&P 500 (SP500) posted a gain of about 0.8% last week to close at a new high for the year. The indicator's fifth consecutive weekly advance capped a historic 9% advance in November. Favorable inflation data has continued to fuel a general consensus that the Federal Reserve is done raising rates and can achieve a soft landing.
“The events of last week kept hopes alive for a soft landing. Perhaps the most important news was the October price index (personal consumption expenditures), the Federal Reserve's preferred inflation indicator… Given the movement “Speakers have generally been satisfied with the current setting of interest rates, consistent with our view that the Federal Reserve is done with increases for this cycle,” JPMorgan's Michael Feroli said Friday.
According to the CME FedWatch tool, markets are now pricing in a ~50% chance that the Fed will deliver a 25 basis point rate cut in March 2024. That chance was around 21% last Monday.
With inflation data showing a positive trend, the Federal Reserve will no doubt pay close attention to the employment reports due out in the coming days to see if cracks are showing in what has been a highly resilient labor market.
“What (Fed spokespersons) want to do and what they will do do not always coincide. An earlier-than-expected start to rate cuts would likely occur only if the labor market deteriorates sharply. While job growth has been slowing slowing down, “There has been a controlled descent. We expect that pattern to continue in the November jobs report,” JPMorgan's Feroli added.
Monday's economic calendar was light, with only October factory orders available. The headline figure fell more than expected, extending a data trend that has shown a slowdown in manufacturing and business activity.
In terms of active engines, the US airline sector was in the spotlight after Alaska Air (ALK) said it would acquire Hawaiian Holdings (HA) for $1.9 billion. Shares of Hawaiian Airlines' parent company soared nearly 200%, while Alaska shares (ALK) fell and were the largest percentage losers in the S&P 500 (SP500).
