Stocks fall after Monday's market rout| Tuesday December 6, 2022

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U.S. stocks fell Tuesday as investors digest new readings on October's trade balance and await results from the Georgia Senate runoff election.

The S&P 500 (^GSPC) sank 1.5%, during midday trading, while the Dow Jones Industrial Average (^DJI) down 1.1%, or more than 370 points. The technology-heavy Nasdaq Composite (^IXIC) fell 1.9%.

Wall Street looked to recover from a rout on Monday, as stocks sunk while investors digested the first releases in a week full of economic data. The S&P is set for its sixth down day in the last seven trading sessions, according to Bespoke Investment Group. Data readings pointing to continued resilience in different pockets of the economy have prompted intense market fixation around the risk that the Federal Reserve will continue to raise interest rates throughout the next year.

Fed officials, including Chair Jerome Powell, have largely suggested the central bank will downshift to a half-point move at their meeting next week after four consecutive 75 basis-point increases. But the employment report on Friday showed strong job gains and robust wage growth, the opposite of what the Federal Reserve would like to see in its battle against inflation.

A smaller increase would indicate a new phase for the central bank’s tightening campaign, but elevated wage pressures could lead to more officials raising their benchmark federal funds above 5% next year, which is currently anticipated by Wall Street.

“In light of the various releases, expectations of the Fed terminal rate priced for May 2023 moved up by 9.5 basis points on the day to 5.01%, crossing the 5% threshold again,” Jim Reid and colleagues at Deutsche Bank wrote in an early morning note Tuesday.

“That’s a noticeable shift from where it was just before Friday’s jobs report, when it hit a low of 4.83%, and means that most of the moves lower after Chair Powell’s Wednesday speech have now reversed,” he added.

Officials will get another read on inflation on December 13, the first day of the Fed's two-day policy meeting, when the Labor Department releases the Consumer Price Index for November.

December has gotten off to a rockier start in the markets as investors “unwind of consensus macro positions this year, which has ensued since the cool CPI print mid-November,” according to Mike Gormley, Equity Institutional Sales at JPMorgan.

In commodity markets, oil prices continued to trade lower Tuesday, with crude futures at $75.83 per barrel. Oil's recent tumble has come even amid recent moves by OPEC and its Russian-led allies to stay the course on production cuts and as China officials have tentatively eased COVID restrictions that have eroded consumption from the world’s largest importer.

In bond markets, the yield on the U.S. 10-year Treasury note edged higher at 3.57% on Tuesday. The dollar also ticked down slightly.

In corporate news, PepsiCo (PEP) plans to eliminate hundreds of jobs at the headquarters of its North American snacks and beverages divisions, The Wall Street Journal reported. The move follows other companies, including Walmart and Ford, that have trimmed jobs of white-collar workers amid economic uncertainty.

Separately, GitLab (GTLB) shares rose nearly 12% after the company posted third-quarter earnings that beat Wall Street expectations and raised forecast revenue in 2023.

And on the politics front, Georgia voters are casting ballots Tuesday in another runoff race that will determine if Democratic Sen. Raphael Warnock can stiff-arm Republican challenger Herschel Walker. Though Democrats have already clinched control of the Senate, both parties have poured heavy resources into the race.

“Senate seats only come up every 6 years with just a third of the chamber elected each time, a victory for either side would make it easier for them to gain control in the 2024 and 2026 elections as well, since that Georgia seat wouldn’t be up for election again until 2028,” Reid and colleagues at Deutsche Bank wrote in a note.

Meanwhile, President Joe Biden will visit TSMC's Arizona plant on Tuesday as the Taiwanese chipmaker said it would triple its planned investments there to $40 billion. Joining Biden in his visit will be Apple CEO Tim Cook, TSMC founder Morris Chang, the head of chipmaker Micron Technology Inc. Sanjay Mehrotra, and NVIDIA founder and CEO Jensen Huang, and among others, the White House said.

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