U.S. stocks ended mostly lower at the start of a holiday-shortened week on Tuesday as Treasury yield rose to build pressure on interest-sensitive megacap companies and investors assessed the economic outlook for 2023. The S&P 500 and Nasdaq ended in negative territory, while the Dow made moderate gains.
How Did The Benchmarks Perform?
The Dow Jones Industrial Average (DJI) rose 0.1% or 37.63 points to close at 33,241.56 points, after climbing as much as 33,387 points at its session high.
The S&P 500 declined 0.4% or 15.57 points to finish at 3,829.25 points. Consumer discretionary and tech stocks were the worst performers.
The Consumer Discretionary Select Sector SPDR (XLY) fell 1.6%, while the Technology Select Sector SPDR (XLK) declined 1%. The Energy Select Sector SPDR (XLE) climbed 1.1%. Six of the 11 sectors of the benchmark index ended in negative territory.
The tech-heavy Nasdaq slid 1.4% or 144.64 points to finish at 10,353.23 points.
The fear-gauge CBOE Volatility Index (VIX) was up 3.74% to 21.65. Decliners outnumbered advancers on the NYSE by a 1.18-to-1 ratio. On Nasdaq, a 1.93-to-1 ratio favored declining issues. A total of 8.35 billion shares were traded on Tuesday, lower than the last 20-session average of 11.35 billion.
Recession Worries Grip Markets
Stocks closed higher on Friday, making the beginning of the Santa Claus rally period. The Santa Claus rally period comprises the final five trading days of the year and the first two days of the new year. Stocks generally make huge gains during this period and a halt in the rally is seen as a negative indicator.
The rally, which was expected to continue on Tuesday, failed to gather steam as concerns over slowing economic growth have been making investors skeptical. Earlier this month the Fed said that it would continue raising interest rates in 2023 so long it doesn’t get complete control over soaring inflation.
Rising interest rates have been worrying investors as they believe this might push the economy into recession. The worries somewhat eased last week after personal consumption index (PCE) data, the Fed’s preferred measure of inflation, reflected a meager increase of 0.1%, lower than the consensus estimate.
However, even then inflation is at multi-year highs, which has been dampening investors’ spirits.
Investors Relived after China Eases Restriction
Investors were somewhat relieved following reports that China has started loosening its COVID-19 restrictions and it will scale back quarantine requirements for incoming travelers from January. However, they will still be required to produce a negative COVID test within 48 hours.
Investors were worried that China’s fresh COVID restrictions following a massive outbreak could once again raise supply-chain issues and slow down the global economy. The news came as a blessing in disguise, easing some of the growing concerns.
Shares of Tesla, Inc.
TSLA
took a hit following reports that the electric carmaker plans to scale back production at its Shanghai plant. Shares of Tesla tumbled 11.4% on Tuesday, with the stock on pace to record its worst year ever.
Also, concerns over rising interest rates have been impacting high-growth stocks, with bond yields pushing higher once again. The 10-year Treasury yield jumped almost 11 basis points to 3.85%. The 2-year Treasury yield rose to 4.408%. shares of Apple Inc.
AAPL
declined 1.4%, while Netflix, Inc.
NFLX
fell 3.7%. Netflix has a Zacks Rank #3 (Hold). You can see
the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here
.
Economic Data
In economic data released on Tuesday, the Case-Shiller 20-city house price index dropped 0.5% in October, recording its fourth straight monthly decline. On a year-over-year basis, home prices increased 8.6% in October, slower than the prior month’s jump of 10.4%.
The Commerce Department said on Tuesday that the U.S. trade deficit in goods narrowed to $83.3 billion, or 15.6%, in November. The trade deficit had widened to $98.8 billion in October from $92.6 billion in the month earlier.
Home prices were steady in October, down from a 0.1% rise the previous month, according to a separate survey from the Federal Housing Finance Agency.
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