Stocks Drop After Big Rally on Weak Factory Data: Markets Wrap

The Institute for Supply Management’s gauge of factory activity slid to 49 from 50.2 in the prior month. The median projection in a Bloomberg survey of economists called for a reading of 49.7. Meantime, a key gauge of US consumer prices posted the second-smallest increase this year while spending accelerated.

“Bottom line, seeing inflation roll over and the soon to be peak in Fed rate hikes was the first mountain to climb for both the economy and markets in 2022,” said Peter Boockvar, chief investment officer at Bleakley Financial Group. “The next mountain needing to be conquered, and will be the 2023 focus I believe, is the economic consequences to such a sharp rise in interest rates, the higher cost of capital that both businesses and households have to deal with and the recession it creates.”

Read: Post-Powell Stocks Rally Fueled by Frenzy in Short-Dated Options

Worries about how far central bankers will go to rein in inflation have kept investors on edge, and equities volatile. Markets are still pricing in rate hikes from the Fed until mid-2023, although Jerome Powell’s lack of a sharp-edged message sent Wall Street rallying Wednesday on optimism officials will back off from tightening too aggressively.

JPMorgan Chase & Co.’s Dubravko Lakos-Bujas said sharp declines await US stocks in the first half of 2023 against the backdrop of a mild recession and Fed rate hikes. The prediction adds to calls from strategists at Goldman Sachs Group Inc. and Deutsche Bank AG that American equities are in for a wild ride next year.

“Despite the recent rebound in equities, we do not think the macroeconomic conditions for a sustained market rally are yet in place,” said Mark Haefele, chief investment officer at UBS Global Wealth Management. “We maintain our view that the Fed will hike rates by 50bps in December and another 50bps in 1Q23, bringing the hiking cycle to an end, however the cumulative impact of prior rate rises will continue to weigh on economic growth and corporate profits.”

Key events this week:

• US unemployment, nonfarm payrolls, Friday
• ECB’s Christine Lagarde speaks, Friday

Some of the main moves in markets:

Stocks

• The S&P 500 fell 0.3% as of 10:13 a.m. New York time
• The Nasdaq 100 fell 0.3%
• The Dow Jones Industrial Average fell 0.8%
• The Stoxx Europe 600 rose 0.8%
• The MSCI World index rose 0.6%

Currencies

• The Bloomberg Dollar Spot Index fell 0.9%
• The euro rose 0.9% to $1.0504
• The British pound rose 1.7% to $1.2267
• The Japanese yen rose 1.6% to 135.89 per dollar

Cryptocurrencies

• Bitcoin fell 0.5% to $17,023.35
• Ether fell 2.2% to $1,268.46

Bonds

• The yield on 10-year Treasuries was little changed at 3.60%
• Germany’s 10-year yield declined 11 basis points to 1.82%
• Britain’s 10-year yield declined six basis points to 3.10%

Commodities

• West Texas Intermediate crude rose 3.1% to $83.02 a barrel
• Gold futures rose 3.1% to $1,813.90 an ounce