Wall Street slips as services data unsettle investors about Fed rate hikes

  • US service sector activity picks up in November
  • Tesla cuts production schedule at Shanghai plant for December sources
  • All sectors of the S&P 500 fall, with energy stocks hit hard
  • Indices down: Dow 1.4%, S&P 1.79%, Nasdaq 1.93%

5 December (Reuters) – US markets closed lower on Monday as investors, spooked by better-than-expected services-sector data, reassess whether the Federal Reserve could hike interest rates for longer, while shares in Tesla stocks by reports of a production cut slipped in China.

The electric vehicle maker (TSLA.O) slumped 6.4% as it plans to cut December production of the Model Y at its Shanghai plant by more than 20% month-on-month.

This weighed on the Nasdaq, where Tesla was one of the biggest losers, and dragged the tech-heavy index down for the second consecutive day.

Broadly, indices suffered as data showed that US service industry activity had unexpectedly picked up in November and employment rebounded, providing further evidence of the economy’s underlying momentum.

The data followed a survey last week that showed stronger-than-expected job and wage growth in November and cast doubt on hopes that the Fed might slow the pace and intensity of its rate hikes amid recent signs of slowing inflation.

“Today is kind of a reaction to Friday because this jobs report, showing the economy wasn’t slowing down that much, contradicted the message that (Chairman Jerome) Powell conveyed Wednesday afternoon,” said Bernard Drury, CEO of Drury Capital Referring to comments by the Federal Reserve Chairman that it is time to slow the pace of forthcoming rate hikes.

“We’re back in anti-inflation mode,” Drury added.

Investors see an 89% chance that the Federal Reserve will hike rates by 50 basis points to 4.25% to 4.50% next week, with rates peaking in May 2023 at 4.984%.

The rate-setting Federal Open Market Committee meets December 13-14, the final meeting in a volatile year in which the central bank attempted to stem a decade-long rise in inflation with record rate hikes.

‘Stock Exchange’ is seen above an entrance to the New York Stock Exchange (NYSE) on Wall Street in New York City, the United States, March 29, 2021. REUTERS/Brendan McDermid/File Photo

Aggressive monetary tightening has also raised concerns about an economic slowdown, with JPMorgan, Citigroup and BlackRock among those believing a 2023 recession is likely.

The Dow Jones Industrial Average (.DJI) fell 482.78 points, or 1.4%, to close at 33,947.1, the S&P 500 (.SPX) lost 72.86 points, or 1.79%, to close at 3,998.84 , and the Nasdaq Composite (.IXIC) fell 221.56 points, or 1.93%, to 11,239.94.

In other economic data this week, investors will also be watching the University of Michigan weekly jobless claims, producer prices and consumer sentiment survey for further clues about the health of the US economy.

Energy (.SPNY) was among the biggest sectoral S&P losers, down 2.9%. It was weighed down by US natural gas futures, which fell more than 10% on Monday as the outlook clouded over forecasts of milder weather and the delayed restart of the Freeport liquefied natural gas (LNG) export facility.

EQT Corp (EQT.N), one of the largest US natural gas producers, was the steepest loser in the energy index, closing 7.2% lower.

Financials (.SPSY) were also hit hard, falling 2.5%. Although bank profits are typically boosted by rising interest rates, they are also sensitive to concerns about non-performing loans or slowing credit growth in times of economic downturns.

Meanwhile, apparel maker VF Corp (VFC.N) fell 11.2% — its biggest single-day drop since March 2020 — after announcing the sudden resignation of CEO Steve Rendle. The company, which owns names such as outdoor clothing brand The North Face and sneakermaker Vans, also lowered its full-year sales and earnings guidance, blaming weaker-than-expected consumer demand.

Volume on US exchanges was 10.78 billion shares compared to the average of 11.04 billion for the entire session over the past 20 trading days.

The S&P 500 posted six new 52-week highs and four new lows; the Nasdaq Composite posted 105 new highs and 133 new lows.

Reporting by Shubham Batra, Ankika Biswas, Johann M Cherian and Devik Jain in Bengaluru and David French in New York; Edited by Anil D’Silva, Shounak Dasgupta and Lisa Shumaker

Our standards: The Thomson Reuters Trust Principles.

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