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U.S. major indices traded lower on Monday, in line with global sentiment, kicking off the holiday-shortened trading week on a sour note as investors fear China could further tighten zero-COVID restrictions.
The Nasdaq Composite (COMP.IND) tumbled 1.12% and the S&P 500 (SP500) slid 0.44%. The Dow (DJI) attempted to bounce back, but has since slipped 0.12%.
COVID cases continue to rise in China, which re-introduced curbs in Shijiazhuang and confirmed three deaths in Beijing – the first in six months. The govt. earlier eased curbs, raising hopes that this would boost growth – which have now been dashed. The dollar (DXY) is 0.77% higher on prospects of a China slowdown.
“This COVID wave is troubling as it nears some of the more populous districts. It seems the zero-COVID policy is not going away any time soon and that will definitely weigh on global growth,” said Edward Moya, senior market analyst, OANDA.
The COVID resurgence hit multiple stocks, including Chinese automakers as well as Tesla (TSLA), given its gigafactory in Shanghai. The Macau-linked casino stocks were also impacted.
Adding to negative sentiment is the increased likelihood of a rail strike after a major railroad labor union voted down a tentative deal with rail management. A strike could cost the economy $2B per day.
Of the 11 S&P 500 sectors, four are currently trading in the red. Energy stocks led losses, dragged by falling oil prices as producers are reportedly mulling a production increase. Consumer staples stocks led gainers.
Deeply “overbought, equities face a crucial test at significant resistance and/or lower highs… this is where recent momentum should begin to reverse but the following weeks will be telling,” said Wolfe Research.
Meanwhile, San Francisco Fed President Mary Daly said the Federal Reserve needs to be mindful of cumulative tightening, lags in monetary policy, and evolution of data when making policy decisions. Investors await FOMC minutes, which will be released on Wednesday.
“We suspect the minutes will reflect general agreement that the funds rate may need to go higher than previously assumed,” said UBS analyst Pablo Villanueva.
Additionally, the yield curve inversion that marked fixed-income trading for the past several months deepened again, notching a new four-decade record. The 10-year Treasury yield (US10Y) climbed 2 bps to 3.84% and the 2-year yield (US2Y) was up 5 bps at 4.56%.
On the economic data front, the Chicago Fed National Activity Index dip in Oct. turned negative again.
According to the New York Fed’s Survey of Consumer Expectations Credit Access, U.S. consumers are less likely to apply for auto loans or mortgages within the next 12 months.
Among top gainers, Disney (DIS) has jumped on the return of Bob Iger to the helm.
