S&P 500 slumps as stronger services data stokes hawkish Fed fears

By Yasin Ebrahim

Investing.com -- The S&P 500 slumped Monday as further data pointing to further signs of inflation pressures weighed on sentiment ahead of the Federal Reserve’s meeting next week.

The S&P 500 fell 1.9%, the Dow Jones Industrial Average slipped 1.4%, or 472 points, and the Nasdaq fell 2.1%

Services activity, which has been an area of the economy flagged by the Fed as a key contributor to inflation, rose by more than expected in November, stoking fresh concerns about more hawkish Fed monetary policy measures.

ISM services data for November showed a jump to 56.5, well above expectations of 53.3, while prices paid index component of the report, a gauge of inflation, “remains sticky at a very high level,” Jefferies said in a note.

The Fed is expected to slow the pace of interest rates at its meeting next week, but recent data including the red-hot jobs report on Friday shows that “they are going to have to hold rates at a high level (sufficiently restrictive) for quite a while to get inflation back down to the 2% target,” Jefferies added.

Treasury yields rose as investors weigh up the prospect of higher for longer interest rates to bring down inflation, pressuring growth sectors of the market including tech and consumer stocks.

Tesla (NASDAQ:TSLA) fell 5% as the electric vehicle company is reportedly set to cut production of its Model Y vehicle by more than 20% at its Gigafactory in Shanghai.

VF Corporation (NYSE:VFC) also dragged consumer stocks lower after tumbling more than 8% as it warned on profit for the second half of the year and announced that its chief executive was departing.

Energy led the decline falling more than 3% driven by a plunge in oil prices even as OPEC and its allies, known as OPEC+,  kept production plans unchanged and amid reports that China eased Covid restrictions over the weekend.

EQT Corporation (NYSE:EQT), Halliburton Company (NYSE:HAL), and Marathon Petroleum Corp (NYSE:MPC) led the losses in the energy sector.

Despite the weaker start to the week for stocks, some on Wall Street believe that the broader market may have bottomed, and are likely to continue to search for direction in the months ahead.

“Overall the markets are in basing / bottoming mode heading into 2023- although we believe the lows are either close or have already been established (October levels),” Janney Montgomery Scott said in a note.