Closing Stock Market SummaryIt's a new year, but the stock market is dealing with the same issues that plagued investors in 2022. The day started on an upbeat note with the main indices logging decent gains thanks to some bargain hunting activity before those gains quickly evaporated on renewed selling interest. The S&P 500 touched 3,878 at this morning's high before briefly dipping below 3,800 around midday.
Market participants digested a slew of sub-50.0 (the dividing line between expansion and contraction) manufacturing PMI readings for December out of Asia and Europe over the weekend. These reports added fuel to existing concerns about the Fed and other central banks risking a major policy mistake by continuing to raise rates without a full appreciation for the lag effect of prior rate hikes.
The key recognition for stock market participants is that a weaker economic backdrop might cause further downward revisions to earnings estimates, equating to valuation concerns.
Strikingly, the advance-decline line still skewed more positive. Advancers led decliners by a 3-to-2 margin at the NYSE and an 11-to-10 margin at the Nasdaq. Buyers were a reluctant bunch nonetheless, unnerved perhaps by how quickly today's early gains evaporated and the poor showing from some mega-cap issues following a dismal 2022 performance.
Sizable losses in a handful of widely-held and heavily-weighted stocks kept the indices under pressure. Tesla (TSLA 108.10, -15.08, -12.2%), which disappointed with Q4 deliveries, Microsoft (MSFT 239.58, -0.24, -0.1%), NVIDIA (NVDA 143.15, -2.99, -2.1%), and Apple (AAPL 125.07, -4.86, -3.7%), which reportedly told suppliers to build fewer components for several devices in Q1 due to weakening demand, were among the more notable standouts in that respect.
Not all the mega-cap stocks sold off today. Gains in Meta Platforms (META 124.75, +4.40, +3.7%) and Alphabet (GOOG 89.70, +0.97, +1.1%) helped propel the S&P 500 communication services sector (+1.4%) to first place on the leaderboard. Also, Amazon.com (AMZN 85.82, +1.82, +2.2%) helped temper the losses in the consumer discretionary sector (-0.6%) that were driven by Tesla.
Meanwhile, the energy sector (-3.6%) was the worst performer by a wide margin as energy complex futures continued to lose ground. WTI crude oil futures fell 3.9% to $76.97/bbl and natural gas futures fell 10.4% to $3.68/mmbtu.
Treasury yields moved lower today, but that didn't help fuel any buying interest in the equity market. Investors were cognizant that falling Treasury yields are an offshoot of concerns about weakening growth that raises the specter of downward revisions to earnings estimates. The 2-yr note yield fell five basis points today to 4.37% and the 10-yr note yield fell ten basis points to 3.78%.
- Dow Jones Industrial Average: flat YTD
- S&P Midcap 400: -0.5% YTD
- S&P 500: -0.4% YTD
- Russell 2000: -0.6% YTD
- Nasdaq Composite: -0.8% YTD
Reviewing today's economic data:
- Total construction spending increased 0.2% month-over-month in November (consensus -0.4%) following an upwardly revised 0.2% decline (from -0.3%) in October. Total private construction increased 0.3% month-over-month while total public construction spending decreased 0.1%. On a year-over-year basis, total construction spending was up 8.5%.
- The key takeaway from the report is that new single family construction continued to decline, clipped by higher interest rates that are making construction projects more expensive to finance at a time when broader economic activity is slowing due in part to the higher interest rates.
- The final IHS Markit Manufacturing PMI reading for December was unchanged from the prior reading of 46.2.
Looking ahead to Wednesday, market participants will receive the following economic data:
- 7:00 a.m. ET: MBA Mortgage Applications Index for the week ending 12/31
- 10:00 a.m. ET: December ISM Manufacturing Index (consensus 48.5%; prior 49.0%)
- 10:00 a.m. ET: November JOLTS Job Openings (prior 10.334 million)
- 2:00 p.m. ET: FOMC Minutes for the December 13-14