Dow sinks more than 200 points, with U.S. stocks in retreat after win streak

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MARKET SNAPSHOT

U.S. stock indexes fell Tuesday afternoon, with the Nasdaq Composite and S&P 500 losing their grip on their longest win streaks in more than two years.

Investors were parsing a report on U.S. wholesale inflation and news that industrial conglomerate General Electric was planning on splitting into three separate companies.

How are stock benchmarks trading?

  • The Dow Jones Industrial Average fell about 239 points, or 0.7%, to 36,194.
  • The S&P 500 slid almost 27 points, or 0.6%, to 4,675.
  • The Nasdaq Composite Index retreated 119 points, or 0.8%, to 15,863.

Though the advance was modest, the S&P 500 on Monday scored its eighth straight gain, its longest winning streak since April 2019. The Dow, S&P 500, Nasdaq Composite and Russell 2000 all finished at record highs after the House of Representatives late Friday passed infrastructure spending legislation that is expected to be signed into law by President Joe Biden.

What’s driving the market?

Investors on Tuesday may be discovering that markets also fall, following a protracted period of buoyancy for the main stock indexes that have been described as a so-called “melt up” by some market bulls and bears alike.

The consumer discretionary, financials, and information technology sectors were under the greatest selling pressure in the S&P 500 index Tuesday afternoon, with the downturn in stocks jeopardizing an eight-day win streak for the index and an 11-session run-up for the Nasdaq Composite.

U.S. stocks appeared “due for a pause” after signs of “exuberant activity,” said Randy Frederick, managing director of trading and derivatives at Charles Schwab, in a phone interview Tuesday. Market volatility had been rising along with stock prices in recent days, which is unusual, he said.

Tesla shares dropped more than 10% Tuesday afternoon, weighing on the S&P 500 and Nasdaq Composite, after founder Elon Musk over the weekend asked in a Twitter poll if he should sell 10% of his stock. A majority of respondents said he should.  

Meanwhile, the Federal Reserve’s twice-a-year financial stability report said valuation measures are high across most asset classes. It noted that stock prices relative to earnings forecasts are at the upper end of its historical distribution, and the yields on Treasury securities, corporate bonds and leverage loans are at low levels relative to their history.

Read: ‘Risks of a market bubble are growing,’ warns Morgan Stanley

Even with the retrenchment, the complexion of the market remains bullish.

“As scary as these heights feel, the market continues trading well. We’ve been solidly overbought for weeks, yet buyers keep throwing even more money at these record highs,” said Jani Ziedins, who authors the Cracked Market blog.

Read: ‘It’s a melt-up’: U.S. stocks are on an unusually strong run heading into the holidays

While U.S. stocks have moved higher faster than he expected, Frederick told MarketWatch that he remains “optimistic” about the fourth quarter as companies should continue to produce strong earnings.

Meanwhile, traders will have to consider the possibility of a change in leadership at the Federal Reserve, after Bloomberg News reported that Fed. Gov Lael Brainard interviewed for the role currently held by Jerome Powell. Powell’s still considered likely to be nominated to serve a second term as chairman.

In U.S. economic data, the October producer-price index rose 0.6%, in line with expectations, with the pace of wholesale inflation over the past 12 months flat at 8.6%. That is the highest level since the index was reconfigured in 2009, and likely one of the highest readings since the early 1980s.

“There’s no question that inflation is high,” said Frederick. Companies have passed on some of their higher costs to consumers, while wages also have been increasing, he said.

Earlier, the National Federation of Independent Business said its gauge of small-business confidence slipped by 0.8 points to 98.2 last month, its lowest reading since March.

Which companies are in focus?

  • Shares of General Electric Co. were up about 2% after the industrial conglomerate announced plans to split into three publicly traded companies.
  • AMC Entertainment Holdings Inc. late Monday reported quarterly results that beat expectations across the board. Shares of the popular meme stock were down around 12%.
  • Shares of Hertz Global Holdings Inc. slid more than 9% Tuesday, after the car-rental company announced overnight that an upsized public offering of shares priced at the top end of the expected range. Hertz emerged from bankruptcy protection in July.
  • PayPal Holdings Inc. shares plunged almost 12% after the payments company fell short of expectations with its holiday-quarter outlook Monday, while also announcing a new arrangement with Amazon.com Inc. through which Venmo users will be able to use the service as a checkout option on the e-commerce giant’s platform.
  • Shares of Roblox Corp. surged almost 35% after the social-gaming platform late Monday said its October performance would still top last year’s, despite a three-day outage over the Halloween weekend.

How are other markets faring?

  • The yield on the 10-year Treasury note BX:TMUBMUSD10Y fell about 7 basis points to 1.43%. Yields and debt prices move in opposite directions.
  • The ICE U.S. Dollar Index, a measure of the currency against a basket of six major rivals, was down about 0.1%.
  • Oil futures rose, with the U.S. benchmark up 2.6% at $84.06 a barrel. Gold futures edged up 0.2% at $1,832.30 an ounce.
  • The Stoxx Europe 600 closed down 0.2%, while London’s FTSE 100 ended 0.4% lower.
  • The Shanghai Composite and Hong Kong’s Hang Seng Index each rose 0.2%, while Japan’s Nikkei 225 fell 0.8%.

—Steve Goldstein contributed to this report.

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