- Activity in the US services sector picks up in November
- Tesla cuts production schedule for Shanghai plant for December – sources
- All S&P 500 sectors are down, with energy stocks hit hard
- Indexes down: Dow 1.4%, S&P 1.79%, Nasdaq 1.93%
Dec 5 (Reuters) – US markets closed lower on Monday as investors, spooked by better-than-expected data from the services sector, reevaluated whether the Federal Reserve could raise interest rates longer, while shares of Tesla fell on reports of a production carved in China.
The electric vehicle maker (TSLA.O) slumped 6.4% on plans to cut Model Y production at its Shanghai plant by more than 20% in December from the previous month.
This weighed on the Nasdaq, where Tesla was one of the biggest fallers, sending the tech-heavy index down for the second straight time.
Overall, indexes took a beating as data showed an unexpected pick-up in activity in the US services sector in November, with employment picking up, providing further evidence of underlying momentum in the economy.
The data followed a survey last week that showed stronger-than-expected job and wage growth in November, challenging hopes that the Fed would slow the pace and intensity of its rate hikes amid recent signs of easing inflation.
“Today is a bit of a reaction to Friday because that jobs report, showing that the economy didn’t slow down that much, ran counter to the message that (Chairman Jerome) Powell delivered Wednesday afternoon,” said Bernard Drury, CEO of Drury Capital, referring to to comments from the head of the Federal Reserve saying it was time to slow the pace of rate hikes ahead.
“We are back in inflation fighting mode,” Drury added.
Investors see an 89% chance that the Federal Reserve will raise rates by 50 basis points next week to 4.25%-4.50%, peaking at 4.984% in May 2023.
The Federal Open Market Committee, which sets interest rates, will meet on December 13 and 14, the latest meeting in a volatile year in which the central bank attempted to halt a decades-long rise in inflation with record rate hikes.
The aggressive policy tightening has also led to concerns about an economic downturn, with the likes of JPMorgan, Citigroup and BlackRock believing a 2023 recession is likely.
The Dow Jones Industrial Average (.DJI) fell 482.78 points, or 1.4%, to close at 33,947.1, the S&P 500 (.SPX) fell 72.86 points, or 1.79%, to close ending at 3,998.84, and the Nasdaq Composite (.IXIC) fell 221.56 points, or 1.93%, to finish at 11,239.94.
In other economic data out this week, investors will also be following weekly unemployment claims, producer prices and the University of Michigan consumer confidence survey for more clues about the health of the US economy.
Energy (.SPNY) was one of the S&P sector’s biggest losers, down 2.9%. It was weighted by US natural gas futures which fell more than 10% on Monday as the outlook deteriorated on forecasts for milder weather and the delayed restart of the Freeport liquefied natural gas (LNG) export plant.
EQT Corp (EQT.N), one of the largest US natural gas producers, was the strongest faller on the energy index, closing 7.2% lower.
Financials (.SPSY) were also hit hard, losing 2.5%. While bank profits are typically boosted by rising interest rates, they are also susceptible to concerns about bad loans or slowing 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 outdoor apparel brand The North Face and sneakermaker Vans, among others, also slashed its full-year sales and profit forecasts, blaming weaker-than-expected consumer demand.
Volume on US exchanges was 10.78 billion shares, compared to the full-session average of 11.04 billion over the past 20 trading days.
The S&P 500 posted six new highs in 52 weeks 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; Edited by Anil D’Silva, Shounak Dasgupta and Lisa Shumaker
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