Stocks were dropping Monday, with the S&P 500 on pace for its worst percentage drop since mid-June.
Photo by ANGELA WEISS/AFP via Getty Images
Stocks are having their worst day in months, dropping as markets look ahead to Friday’s Federal Reserve confab in Jackson Hole, Wyo., where Jerome Powell could take a more aggressive stance in the battle against inflation.
In afternoon trading, the Dow Jones Industrial Average has fallen 690 points, or 2%, while the S&P 500 has dropped 2.3%, and the Nasdaq Composite has declined 2.6%.
For the Dow, this is the largest one-day point and percentage loss since June 16, when it fell 2.4%. It is also the worst point and percentage drop for the S&P 500 since that day when it fell by 3.3%. The Nasdaq is having its worst day since June 28, when it fell 3%.
The Fed’s annual get-together at Jackson Hole could bring about disappointing news. The market has been betting that the pace of rate hikes—meant to quell high inflation by dampening economic demand—will slow down. After all, the rate of inflation has already begun to decelerate.
The expectation of fewer rate hikes might have been too optimistic, however, as the fed funds futures market is now reflecting a 55% probability that the Fed will lift the federal-funds rate by three-quarters of a percentage point, rather than a half a point. That’s up from a 39% chance a week ago.
Higher short-term rates are pushing the 10-year Treasury yield higher, which isn’t helping the stock market. The yield rose to as high as 3%, a level it hasn’t reached in roughly a month’s time. Higher long-dated bond yields make cash flows for long-term assets like stocks less valuable. Plus, they threaten to keep a lid on economic demand.
Consistent with that, the dollar has continued strengthening. When U.S. rates rise faster than rates around the globe, investors buy dollars in order to buy U.S. bonds. That has sent the euro down versus the dollar all year—and in the last month, it’s down more than 2% and is now about equal with the dollar. A higher dollar versus other currencies reduces U.S. sales made overseas when those revenues are translated back into dollars.
But stocks have been in selloff mode since Friday. At its current level, the S&P 500 is down 2.7% from its Thursday’s close. The drop comes as market participants lighten up on their positions following the rally off the June low.
“Markets are now also expecting a hawkish outcome with the rally in equities beginning to reverse,” writes Andrew Hollenhorst, Citi economist.
For the rest of the week, the stock market’s movements will likely be dependent on macroeconomic developments, especially with most of earnings season out of the way. Pending home sales data come out this week, with economists expecting a decline month-over-month. The personal-consumption expenditures index is out Friday and Wall Street is looking for the increase to be lower than the last reading of 6.8% year over year. Markets won’t be bothered to see those signs of cooling demand, as that will limit the Fed’s ability to lift rates aggressively.
The Fed, of course, will have the final say.
Here Are Some Stocks on the Move Monday
Cineworld Group (ticker: CINE.U.K.) dropped 21% in London trading after the movie theater chain that owns Regal Cinemas said it was considering a possible voluntary Chapter 11 filing in the U.S. as part of its restructuring objectives.
AMC Entertainment (AMC) slid 39% as the AMC Preferred Equity Units (APE)—which were announced as a special dividend to Class A common stockholders earlier in August—launched.
Signify Health (SGFY) gained 32% amid expectations that the company’s board will be meeting Monday to discuss takeover bids for the healthcare company. Amazon.com (AMZN), UnitedHealth Group (UNH), and Option Care Health (OPCH) are bidding for the home-health-services provider, The Wall Street Journal reported Sunday. It’s previously been reported that CVS Health (CVS) was also a bidder.
VF Corp . (VFC) stock dropped 5.3% after getting downgraded to Market Perform from Outperform at Cowen.
DocuSign (DOCU) stock was down 3.9% after getting downgraded to Sector Perform from Outperform at RBC.
Ford Motor (F) stock fell 4.9% after the company announced job cuts as it prepares to invest in its electric-vehicle business.
Write to Jacob Sonenshine at jacob.sonenshine@barrons.com and Jack Denton at jack.denton@dowjones.com
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