Wall St slips as services data spooks investors over Fed rate hikes

  • U.S. service sector activity picks up in November
  • Tesla cuts Shanghai factory production plan for December – sources
  • All S&P 500 sectors pull back, with energy stocks hit hard
  • Indices down: Dow 1.4%, S&P 1.79%, Nasdaq 1.93%

Dec 5 (Reuters) – U.S. markets ended lower on Monday as investors spooked by better-than-expected data from the services sector reassessed whether the Federal Reserve could raise interest rates for longer, while stocks from Tesla have slipped over reports of a production cut in China.

The electric vehicle maker (TSLA.O) fell 6.4% as it planned to cut production of the December Model Y at its Shanghai plant by more than 20% from the previous month.

That weighed on the Nasdaq, where Tesla was one of the biggest fallers, dragging the tech-heavy index to its second straight decline.

Overall indices suffered as data showed activity in the U.S. services industry unexpectedly picked up in November, with employment rebounding, offering more evidence of momentum. underlying the economy.

The data came on the heels of a survey last week that showed stronger-than-expected job and wage growth in November, challenging hopes the Fed could slow the pace and intensity of its rate hikes amid recent signs of slowing inflation.

“Today is a bit of a response to Friday, because that jobs report, showing the economy wasn’t slowing that much, was contrary to the message that (Speaker Jerome) Powell delivered on Wednesday after noon,” said Bernard Drury, CEO of Drury Capital, referring to the Federal Reserve chief’s comments that it was time to slow the pace of upcoming interest rate hikes.

“We’re back in inflation-fighting mode,” Drury added.

Investors see an 89% chance that the US central bank will raise interest rates by 50 basis points next week to 4.25%-4.50%, with rates peaking at 4.984% in May 2023.

The Federal Open Market Committee responsible for setting rates meets Dec. 13-14, the final meeting of a volatile year, in which the central bank has tried to halt a decades-long rise in inflation with hikes record high interest rates.

‘Stock Exchange’ is seen above an entrance to the New York Stock Exchange (NYSE) on Wall St. in New York, U.S., March 29, 2021. REUTERS/Brendan McDermid/File Photo

Aggressive policy tightening has also raised concerns of an economic slowdown, with JPMorgan, Citigroup and BlackRock among those who think a recession is likely in 2023.

The Dow Jones Industrial Average (.DJI) fell 482.78 points, or 1.4%, to close at 33,947.1, the S&P 500 (.SPX) lost 72.86 points, or 1.79% , to end at 3,998.84, and the Nasdaq Composite (.IXIC) lost 221.56 points, or 1.93%, to end at 11,239.94.

In other economic data this week, investors will also be watching weekly jobless claims, producer prices and the University of Michigan consumer sentiment survey for more clues on the health of the economy. American economy.

Energy (.SPNY) was among the S&P’s biggest sector losers, down 2.9%. It was weighed down by U.S. natural gas futures which fell more than 10% on Monday as the outlook darkened due to better weather forecasts and a delayed restart of the export plant. of liquefied natural gas (LNG) from Freeport.

EQT Corp (EQT.N), one of the largest natural gas producers in the United States, was the biggest drop in the energy index, closing down 7.2%.

Financials (.SPSY) were also hard hit, falling 2.5%. Although bank profits are generally boosted by rising interest rates, they are also sensitive to concerns about bad loans or slower loan growth during an economic downturn.

Meanwhile, clothing maker VF Corp (VFC.N) fell 11.2% – its biggest one-day drop since March 2020 – after announcing the sudden retirement of CEO Steve Rendle. The company, which owns names including outdoor clothing brand The North Face and sneaker maker Vans, also cut its full-year sales and profit forecast, blaming weaker consumer demand than intended.

Volume on U.S. exchanges was 10.78 billion shares, compared to an average of 11.04 billion for the full session over the past 20 trading days.

The S&P 500 posted six new 52-week highs and four new lows; the Nasdaq Composite recorded 105 new highs and 133 new lows.

Reporting by Shubham Batra, Ankika Biswas, Johann M Cherian and Devik Jain in Bengaluru and David French in New York; Editing by Anil D’Silva, Shounak Dasgupta and Lisa Shumaker

Our standards: The Thomson Reuters Trust Principles.

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