Before The Bell
After carving out some new highs last week, Wall Street retreated yesterday as unfavorable news on the coronavirus front prompted more caution among investors. This morning’s Producer Price Index indicated greater than expected increases, suggesting the selloff is likely to continue.
The rapidly spreading Omicron variant of the Coronavirus remains at the top of the current “wall of worry”. Researchers at the University of Oxford announced a new study on Monday showing that two doses of the Oxford-AstraZeneca or the Pfizer-BioNTech shots are not as effective against Omicron as they were with previous COVID-19 variants. While booster shots are seen as effectual, and Omicron appears to present less risk of severe disease than the Delta strain, its rapid spread could still overtax healthcare systems across the globe. Not surprisingly, travel and leisure related companies, such as American Airlines (AAL) and Carnival Corp (CCL), were among the biggest decliners yesterday. Conversely, vaccine makers, notably BioNTech (BNTX), Moderna (MRNA), Bristol-Myers Squibb (BMY), and Pfizer (PFE), posted sizeable gains.
Also weighing on investors’ minds is just how aggressive the Federal Reserve will be over the next few quarters. With inflation at multi-decade highs, and producer prices jumping (see below), the likelihood is that the lead bank will begin raising its overnight rate sooner rather than later. Thus, investors will be eagerly awaiting an announcement after the Federal Open Market Committee’s two-day policy meeting this week. (Generally speaking, rising interest rates tend to weigh on stock prices, as fixed-income investments (such as bonds) become comparatively more attractive.)
The Dow Jones Industrials ended the session down 320 points, or 0.9%. The S&P 500 shed 41 points (-0.9%), while the tech-heavy NASDAQ fared the worst of the three, falling 217 points (-1.4%). Declining issues dominated most of the key market sectors, with the biggest losses coming from energy (-2.8%), consumer discretionary (-2.4%), and technology issues (-1.6%). Utilities stocks were among the beneficiaries of a shift to safe-haven stocks, rising 1.2% for the session.
Elsewhere, oil prices took only a modest hit, with light sweet crude falling half a percentage point, to about $71.30 a barrel. However, the commodity is still up more than 45% for the year to date. Meanwhile, the European bourses also ended in the red, with the U.K.’s FTSE 100 down .8%, France’s CAC-40 off by 0.7%, and Germany’s DAX just below breakeven.
This morning, the Producer Price index for November showed an increase of 9.6%, marking the largest rate of increase since the Labor Department began keeping records in 2010. Analysts were looking for an uptick of around 9.2% versus 2020. By comparison, October’s reading was an increase 8.6% compared to last year. The core number, which takes out food and energy, also marked a record with an increase of 6.9%.
Checking markets around the globe for responses to the news, stocks in Asia closed mostly down, but with relatively modest declines, while the European bourses are mixed, but largely trending even further down. Meanwhile, U.S. stock futures—which, prior to the inflation report, were suggesting a mixed open to start the session—have all pushed sharply lower. Crude oil prices also moved abruptly, falling about 1.1%.
Tomorrow morning brings the latest monthly figures on retail sales, where a deceleration of 0.8% is expected for November (October was up 1.7%). This will be followed by the Federal Reserve’s announcement at 2 PM eastern time. On Thursday, investors will be poring over November’s numbers for building permits and housing starts, where the consensus is calling for seasonally adjusted annual rates (SAAR) of 1.66 million and 1.56 million, respectively.
– Mario Ferro
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
