Dow loses 400 points as strong data reinforces fears Fed will need to be more aggressive

U.S. stocks fell on Monday after a hotter-than-expected reading for the U.S. services sector added to concerns that the Federal Reserve may need to be even more aggressive in its fight against inflation despite fears of a looming recession.

How stocks are traded
  • The Dow Jones Industrial Average DJIA fell 407 points, or 1.2%, to 34,022.

  • S&P 500

    fell 62 points, or 1.5%, to 4,010.

  • The Nasdaq Composite

    fell 185 points, or 1.6%, to 11,277.

Stocks ended mixed on Friday, despite paring last week’s gains after Friday’s solid November jobs report, which raised concerns that inflation may not be so easily defeated.

What drives the markets

Strong wage growth released on Friday were followed on Monday by a solid reading on the U.S. services sector — both of which helped stoke concerns that the Federal Reserve’s rate hikes, along with a modest balance sheet weakening, haven’t had much of an impact on a tight U.S. labor market .

The ISM barometer for US business conditions in the services sector came out stronger than expected, rising to 56.5% in November, a strong showing that signals the US economy is still expanding at a steady pace.

The ISM services figure “surprised on the upside, suggesting that the economy is still moving above its long-term sustainable path and that the Fed will need to slow the economy more than expected in 2023,” Bill Adams, Dallas-based chief economist of Comerica Inc.
said on the phone.

In other economic data, the final November S&P Global US services PMI rose to 46.2 from 46.1, but remained in contracting territory.

November jobs data released on Friday showed that average hourly wages rose over the past year by more than 5% as of November, beating economists’ expectations and fueling concerns that steady wage growth will continue to fuel inflation, they said market strategists.

Concerns about a more aggressive Fed also helped drive the move The yield on government bonds is higher, increasing pressure on stocks. The yield on the 10-year note rose 8 basis points to 3.59% on Monday. Treasury yields have moved inversely with prices, and yields have fallen sharply over the past month, driven by changing expectations about the pace of Fed rate hikes.

In news from other markets, signs that China’s government is easing its COVID restrictions helped Hong Kong’s Hang Seng index

ended with a 4.5% advance.

See also: China ADRs and casino operators rally on signs of easing of COVID

Meanwhile, crude oil prices fell on Monday, a day after a decision on Sunday by OPEC and its allies to keep production quotas unchanged.

Falling stock prices helped boost the CBOE Volatility Index
aka the VIX, back above 20 on Monday. The volatility gauge has fallen sharply in recent weeks as stocks have rallied, potentially signaling complacency that could ultimately hurt stocks, Jonathan Krinsky, chief market technician at BTIG, said in a note to clients.

“SPX again finds itself at downtrend resistance around 4100 with VIX below 20. 10-year yields have returned to key support at 3.50%. We expect both of those levels to hold, but we wonder if the yield falls below 3.50% will that be seen as favorable for the stock as the move from 4.25% to 3.50% was?” Krinsky said.

Companies in focus

– Jamie Chisholm contributed to the reporting of this article.

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