Selling pressure drops S&P 500 below 200-day moving average
The new week has started with the major indices running into some selling pressure after a huge run already this quarter. To wit: entering today, the Dow Jones Industrial Average was up 19.9% since the end of September.
Some proximate catalysts for the weak beginning include:
A Wall Street Journal article from Nick Timiraos that suggests Fed officials could take the benchmark rate in 2023 higher than the 5.00% currently expected by the market due in part to "brisk wage growth."
A stronger-than-expected ISM Non-Manufacturing Index for November (56.5% vs 54.4% prior) that bolstered the view that the Fed is apt to keep rates higher for longer.
An uptick in Treasury yields. The 2-yr note is up 6 bps to 4.35% and the 10-yr note is up 7 bps to 3.57%.
Some softness in several mega-cap stocks, but some acute weakness in Tesla (TSLA 185.30, -9.56, -4.9%) even though it has refuted press reports that it is planning an output cut of at least 20% for the Model Y at its Shanghai plant in December.
Initial selling activity dropped the S&P 500 below key support at its 200-day moving average (4,045). It remains stuck under that key technical level, weighed down by a lack of leadership.
All 11 S&P 500 sectors are lower with losses ranging from 0.4% (communication services ) to 2.1% (consumer discretionary).
Cyclical sectors are among the weakest areas despite news over the weekend that major cities in China have relaxed their COVID testing requirements for using public transportation and buying certain medicines. The energy sector (-1.3%) is among those weak spots even though OPEC+ agreed to maintain its production cut target of 2 million barrels per day from November until the end of 2023. Separately, the EU and its allies agreed to a $60.00 per barrel price cap on Russian oil.
The financial (-1.7%), materials (-1.4%), and industrial (-1.3) sectors are other underperformers. The cyclical skew is presumably a reflection of concerns that the Fed is going to overtighten and trigger a deeper economic setback.
The Dow Jones Industrial Average is down 0.7%; the S&P 500 is down 1.1%; the Nasdaq Composite is down 1.2%; and the Russell 2000 is down 1.7%.
