Text size
Federal Reserve Chairman Jerome Powell said last week that getting inflation under control was key.
Win McNamee/Getty Images
The stock market slid on Monday as rising Covid-19 cases in China raised fears of a global economic slowdown.
In the afternoon discussions, the
Dow Jones Industrial Average
fell 238 points, or 0.7%, after the benchmark fell 981 points on Friday. the
S&P500
decreased by 1%, while
Nasdaq Compound
was down 0.2%.
The stock market had previously been spooked by rising Treasury bond yields and the potential for much higher interest rates as the Federal Reserve seeks to rein in high inflation. On Monday, he decided to worry about the impact of rising Covid cases in China as well, because Shanghai saw thousands of new cases on Sunday.
Economically sensitive stocks recorded the worst losses. the
Industrial Select Sector SPDR
Exchange-Traded Fund (XLI) fell 1.6%, while the
Materials Select an SPDR sector
The ETF (XLB) fell 1.8%.
A China going into shutdown mode means American businesses will struggle to access the supply of goods and services. Not only could this increase costs and put pressure on profit margins, but if companies continue to raise selling prices to consumers, demand could also suffer.
Growth concerns also weighed on the price of oil, with WTI crude falling more than 4% to just under $98 a barrel, and sparking a general flight to safer assets. The price of 10-year Treasury bills rose, with the yield falling to 2.8% from 2.92% on Friday.
Tech stocks, whose earnings depend more on long-term industry changes and less on strong economic growth, were the best performers. The decline in the 10-year yield also helped the technology. Falling yields on long-term bonds make future earnings more valuable — and many fast-growing tech companies are valued on the basis that they will pump some of their earnings many years into the future.
Outside of technology, stocks fell across the board. More than three-quarters of S&P 500 stocks were in the red, according to FactSet.
“The feeling is lousy,” wrote Andrew Brenner of NatAlliance. “We think the Fed clearly won’t get a soft landing, and the instability is scary.” A “soft landing” means the Fed can raise interest rates to keep inflation under control without destroying economic demand, which is already facing challenges.
Today, the hope is that strong corporate earnings can help halt the market’s decline. Some 173 S&P 500 companies are due to report this week, including
Microsoft
(symbol: MSFT),
Amazon.co.uk
(AMZN),
Apple
(AAPL),
Alphabet
(GOOGL),
General Electric
(GE),
PepsiCo
(PEP) and
United Parcel Service
(UPS).
But so far, earnings season hasn’t done much for the stock market. Indeed, macroeconomic concerns threaten to dampen earnings growth beyond the current quarter, which means that earnings results are not necessarily the best representation of what earnings will look like in the coming quarters.
“Despite strong results, the market response has been particularly subdued,” wrote Jonathan Golub, chief US equity strategist at Credit Suisse. “This is often the case when macro headlines distract investors.”
Overseas, the pan-European
Stoxx 600
fell by 1.8%, and that of Tokyo
Nikki 225
lost 1.9%.
Cryptocurrencies followed stocks lower. Higher interest rates are likely to dampen investor sentiment towards assets considered riskier, such as digital assets.
Bitcoin,
the largest cryptocurrency, fell 3% in the past 24 hours to around $38,500.
Evercore ISI’s Mark Mahaney outlines his outlook for future tech earnings while iCapital’s Anastasia Amoroso explains where she’s looking for yield outside of stocks.
Here are five stocks in motion on Monday:
Twitter
(TWTR) rose 5.3%, after the social media company met with Elon Musk over the weekend to discuss the
You’re here
CEO’s $43 billion takeover bid.
ActivisionBlizzard
(ATVI) fell 1.2% after the company reported earnings of 64 cents per share, missing estimates of 71 cents per share, on sales of $1.77 billion, below expectations of 1 $.82 billion.
Coca Cola
(KO) gained 0.1% after the company reported earnings of 64 cents per share, beating estimates of 58 cents per share, on sales of $10.5 billion, above expectations of 9 .8 billion dollars.
Advanced micro-systems
(AMD) gained 0.8% after being upgraded to Strong Buy from Outperform at Raymond James.
Deere & Co.
(DE) The stock fell 6.7% after being downgraded to Neutral by Buy at Bank of America.
Write to Jack Denton at jack.denton@dowjones.com and Jacob Sonenshine at jacob.sonenshine@barrons.com
