U.S. stocks fell on Monday as unrest in China over the country’s restrictive COVID controls weighed on global sentiment and Wall Street returned from a holiday weekend.
The S&P 500 (^GSPC) fell 1.5%, while the Dow Jones Industrial Average (^DJI) posted about the same percentage loss, nearly 500 points. The tech-heavy Nasdaq Composite (^IXIC) fell 1.6%.
Investors assessed widespread protests in major Chinese cities that began over the weekend over the country’s zero-COVID policies. The US dollar appreciated against other currencies as the yuan plummeted. Oil plunged to 2022 lows, with West Texas Intermediate crude futures trading at around $77 a barrel.
Shares of Apple (AAPL) fell 2.6% on Monday on fears that unrest in China could put pressure on a key manufacturing plant in the country and further weigh on already constrained iPhone production. Bloomberg also reported that the uproar across the country could lead to a production shortfall of around 6 million iPhone Pros this year.
Remarks by St. Louis Fed Chairman James Bullard also dampened the mood on Wall Street on Monday after he claimed the U.S. central bank had “some way to go” on interest rates. Bullard said the federal funds rate needs to be raised to at least a range between 5.00% and 5.25% to be “tightly enough” to keep inflation in check.
Cryptoworld was in focus following a report from Decrypt that digital asset lender BlockFi will file for bankruptcy and lay off staff as the contagion effects of FTX’s collapse continue to permeate the space. .
Investors face a deluge of economic data this week as they head into December. The government’s November jobs report, housing data, a second look at third quarter GDP and PCE inflation are just a few of the key releases to come.
Monday’s moves come after a week of modest gains for stocks that saw the S&P 500 rise 1.5%, the Dow Jones 1.8% and the Nasdaq Composite 0.7% over the period. three and a half day negotiation cut short by Thanksgiving.
There are just 24 trading days left in 2022. The Federal Reserve and the way forward for interest rate officials continue to be the focus of investors’ minds, with the latest hike of the year from the US central bank on deck after its next meeting on December 13-14.
The Fed’s meeting minutes earlier this month – and a chorus of Fed officials in recent weeks – have suggested that a decline in the magnitude of December’s rate hike is likely as policymakers are considering a “slower but higher” rate regime. Investors are largely expecting a 0.50% increase in the bank’s overnight interest rate, down from four straight increases of 0.75%.
While a deceleration and eventual pivot are eagerly awaited by equity investors, Wall Street strategists have warned there is nothing to get excited about in the new year, even if inflation appears to be easing. and that a break in the tightening is approaching.
Goldman Sachs analysts, led by David Kostin, said in their 2023 outlook that the S&P 500 is expected to end next year roughly flat, weighed down by a lack of corporate earnings growth.
“U.S. equity performance in 2022 was all about painful devaluation, but the equity story for 2023 will be about lack of corporate earnings growth,” the Goldman Sachs team said. “Put simply, zero earnings growth will cause the stock market to appreciate zero.”
Meanwhile, Morgan Stanley warned in its own forecast that the S&P 500 will “walk on water”, with significant swings along the way, to end 2023 around 3,900.
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Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter @alexandraandnyc
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