Dow sinks 450 points as Nasdaq tumbles 7% from record high on concerns about inflation and Washington’s debt feud

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MARKET SNAPSHOT

U.S. stock benchmarks slumped Monday afternoon, led primarily by the decline of large market-capitalization technology companies and growing concerns about sticker-than-expected, against the backdrop of a mountain of worries that investors are contending with as the U.S. economy attempts to rebound from the COVID-19 pandemic.

Where are stock benchmarks trading?

  • The Dow Jones Industrial Average fell 384 points, or 1.1%, to about 33,948.
  • The S&P 500 fell by about 67 points, or 1.5%, to 4,289, as technology and communication services shares tumbled more than 2%.
  • The Nasdaq Composite Index declined 351 points, or 2.4%, to about 14,215, with the tech-heavy index off by more than 7% from its Sept. 7 record close.

Last week was a rough one for U.S. stocks, as the S&P 500 dropped 2.2%, though the three major indexes each advanced on Friday.

On Friday, the Dow rose 483 points, or 1.43%, to 34326, the S&P 500 increased 50 points, or 1.15%, to 4357, and the Nasdaq Composite gained 118 points, or 0.82%, to 14567.

What’s driving markets?

A selloff was taking shape on Monday, with markets succumbing to pressure in technology and tech-related stocks. Notably, the S&P 500’s communication services sector was off 2.8%, led by Facebook Inc., and the technology sector was off 2.9%. Utilities and energy were the only sectors spared from the selloff.

“This market selloff is being led by the technology sector,” Lindsey Bell, chief investment strategist at Ally Invest, said via phone on Monday. “But investors, in my mind, are realizing or thinking through a wall of worry that includes the debt ceiling, higher oil prices and inflation, a weaker-than-expected earnings season, and a Federal Reserve that’s becoming less dovish.” 

“This is a change of pace for investors as the pace of growth normalizes,” Bell said. “Although October is historically the most volatile month of the year, we still expect growth in the economy to remain above trend through next year.”

Driving inflation-based fears was U.S. oil’s rally to a seven-year high, with international benchmark Brent at its highest since 2018. On Monday, the Organization of the Petroleum Exporting Countries and its allies kept their current agreement to gradually raise crude production each month, including a 400,000 barrels a day increase in November.

Karyn Cavanaugh, chief investment officer at Carolinas Wealth Management, told MarketWatch that the market is responding to worries that “inflation may not be that transitory.” She doubts that the recent declines suggest that the markets were going to turn more substantially bearish and said that it is more likely that the market is “going to be a little bit of a grind” higher.

The CIO said guidance from chief executives could be a determinant in the market’s mood, however. Next year “could be a little bit more difficult, but for now I don’t think the wheels are coming of the bus,” she said of the current state of the market.

“I think that it is too early to ring the alarm bell,” she said. There is “a lot of liquidity in the market buying bonds and the consumers are in fantastic shape,” she said.

The market has been under increasing pressure, with developments centered on those in Washington, D.C., where tense negotiations on the debt ceiling are playing out and negotiations on infrastructure spending and social spending have failed to achieve a resolution. According to The Wall Street Journal, Democrats were debating whether to reduce proposed programs or cut their duration to shave down the $3.5 trillion size of the social spending proposal.

In U.S.-China relations, President Biden’s top trade negotiator, U.S. Trade Rep. Katherine Tai, was quoted by the Washington Post on Monday as saying that China has failed to live up to its commitments under an agreement signed last year. “Our objective is not to inflame trade tensions with China,” she said in a speech at the Center for Strategic International Studies.

The main takeaway for investors may be that the U.S.-China trade war, which intensified under former President Donald Trump, isn’t going to end soon, despite a change in leadership at the White House. After a lengthy review of Beijing-Washington trade relations, the Biden administration has left in place Trump-era tariffs on Chinese imports. Senior officials also say they might take other punitive measures unless Chinese authorities respond to U.S. concerns.

In macro news, indebted Chinese property developer China Evergrande said it may sell its property management arm. Traders have been concerned that Evergrande’s inability to pay debt will roil the Chinese economy, the second-largest in the world.

On the public health side, the CEO of BioNTech told the Financial Times that COVID-19 is likely to continue mutating to the point where it can escape vaccines and immune systems and that a new vaccine may be required in the future. Meanwhile, Johnson & Johnson JNJ and Moderna MRNA have applied for authorization from the FDA for their COVID-19 vaccine boosters and an advisory committee will discuss them at a meeting scheduled for Oct. 14 and Oct. 15.

In economic reports, U.S. factory orders rose 1.2% in August, beating the 1.1% estimate of economists surveyed by The Wall Street Journal.

Bloomberg News also reported on the trading of Fed Vice Chairman Richard Clarida, saying he traded stocks on the eve of a statement made about the pandemic. While the central bank said a February 2020 trade was a preplanned rebalancing, it puts further pressure on Fed Chairman Jerome Powell ahead of a White House decision on whether to nominate him for another term.

Read: Powell’s shaky hold on his Fed chair rattles markets, but a Fed face-lift is unavoidable

Which companies are in focus?

  • Facebook practices are in the spotlight after comments from a whistleblower. A former employee appeared on CBS’ “60 Minutes” and accused the social-media company of putting profit before public good “over and over again.” The interview follows a series of reports by The Wall Street Journal called “The Facebook Files” suggesting, among other things, that executives were aware of the negative impact of its platforms on many users. Its stock was down 5.1%.
  • Shares of Redhill Biopharma LtdRDHL were in focus on Monday after the company said it had new data from a Phase 2/3 clinical study evaluating its experimental oral antiviral opaganib in severely ill, hospitalized COVID-19 patients. Its stock was up more than 10%.
  • AMC Entertainment Holdings Inc. AMC said the weekend set new post-opening records for global attendance, admission revenue and food and beverage sales, thanks to strong performances by “Venom: Let There Be Carnage” in the U.S. and James Bond’s ‘No Time to Die” internationally. Shares were down 3.8%.
  • IMAX Corp. IMAX shares were up 4.3% after it said it garnered $30 million in global box office receipts over the weekend to mark its strongest October weekend ever and its biggest weekend tally since December of 2019. 
  • Shares of Amplify Energy Corp. AMPY announced a large oil spill in Southern California over the weekend. Shares of the company were down more than 45%.
  • Cree Inc. has changed its name to Wolfspeed Inc. WOLF and the technology company begins trading Monday on the New York Stock Exchange under the ticker symbol “WOLF.” Its stock was up 1%.
  • Bed Bath & Beyond Inc. BBBY announced the launch of the Studio B home décor collection on Monday. Shares were off 3.1%.
  • FireEye Inc. FEYE shares were off more than 3% after the cybersecurity company said Monday it will officially change its name to Mandiant Inc. and trade under the new ticker symbol ‘MNDT’ from Tuesday. 

How are other assets trading?

  • The yield on the 10-year Treasury note TMUBMUSD10Y rose, but as stocks sold off its gains were moderating on Monday to around 1.48%, after last week putting in its sixth straight weekly rise, according to Dow Jones Market Data.
  • The ICE U.S. Dollar Index DXY, a measure of the currency against a basket of six three major rivals, fell 0.3% Monday.
  • Oil futures CL00 traded higher, with the U.S. benchmark rising 2.7% to reach $77.94 a barrel Monday after OPEC and its allies agreed to hold steady previously agreed upon increases in crude output starting in November. Gold futures  traded up 0.6% at $1,768.60 an ounce.
  • In European markets, the Stoxx Europe 600 index SXXP closed down 0.5%. The FTSE 100 Index ended 0.2% lower.
  • The Nikkei 225 index NIK closed down 1.1%. China markets were closed for a the Golden Week holidays. Hong Kong’s Hang Seng closed down 2.2%.
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