Stock Market Closes Lower After Fed Official Says Inflation Could Last Into 2024

The stock market closed lower Monday after Fed officials gave separate speeches across the country that said inflation could last into 2024 and that financial markets may be underestimating the number of rate hikes. Oil and real estate stocks took the brunt of the declines. Apple (AAPL) stock lost ground after a report that iPhone production could fall short of estimates.

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The Nasdaq composite closed 1.6% lower and the S&P 500 fell 1.5%. The Dow Jones Industrial Average declined 1.5%. The small-cap Russell 2000 index sold off 2%.

Volume rose on the NYSE and the Nasdaq vs. the same time on Friday, early data showed. But keep in mind that Friday was a half session.

The yield on the benchmark 10-year Treasury note slid one basis point to 3.68%. Crude oil rose 0.5% to $76.65 per barrel.

The biggest drop among sectors was in real estate. The S&P Real Estate Select Sector ETF (XLRE) fell 2.8%.

Stock Market Closes Lower On Fed Comments

New York Fed President John Williams said he expects inflation pressures to recede over the next year but said he expects inflation to be above 3% by the end of next year. He said the Federal Reserve will continue to have its work cut out as prices may decelerate to levels still above the Fed’s 2% target.

“There is still more work to do,” Williams said in a speech set for delivery on Monday.

St. Louis Fed President James Bullard said in another speech Monday that the Fed is banking on an economic slowdown to help tamp down demand and inflation.

In a speech that echoed former Fed chair Alan Greenspan’s 1996 “irrational exuberance” speech, Bullard said financial markets are likely in denial about the number of interest rate hikes left in the current tightening cycle.

“The Fed will likely hike rates by 0.50% at the December meeting and could further downshift the pace of hikes if the economy begins to falter,” said Jeffrey Roach, chief economist for LPL Financial, in response to Bullard’s comments. “High inflation is still the greater concern for the Fed.”

The probability the Federal Reserve will raise rates by 0.5%, or 50 basis points, in its mid-December meeting has fallen to 67.5%. Odds for a 75-basis-point hike have risen to 32.5%, according to the CME FedWatch tool.

Black Friday brick and mortar sales rose 2.9%, according to retail analytics provider Sensormatic Solutions. The National Retail Federation expects 2022 holiday sales to rise between 6% and 8%. Online shoppers didn’t wait for Cyber Monday sales, lifting e-commerce receipts to $9.12 billion, up 2.3% compared to 2021.

Chinese stocks fell Monday, initially dragging down the U.S. market after a weekend of protests erupted across China. Protesters were challenging the Chinese government’s strict Covid-19 lockdowns. The Hong Kong Hang Seng Index fell 1.6% and the Shanghai index dropped 0.8%. But the iShares MSCI China ETF (MCHI) rose 1.1% and iShares China Large-Cap ETF (FXI) gained 0.9%.

Apple Falls On Reports Of Low iPhone Production

Apple iPhone Pro production could fall short by 6 million units due to civil unrest and Covid restrictions in China, according to reports. The stock closed 3.1% lower.

Bloomberg reported that unrest at the Foxconn plant in Zhengzhou could trigger a 6-million-unit shortfall in 2022 iPhone Pro production. And that number could grow if Covid restrictions are extended a few more weeks, according to sources. The Zhengzhou factory manufactures the vast majority of iPhone 14 Pro and Pro Max smartphones.

AAPL stock fell below the 50-day moving average. Apple performance compared to the S&P 500 has been declining since September.

Dow Jones stock and airplane maker Boeing (BA) slid 3.7% Monday, dipping below its 5% buy range. The stock first crossed a 173.95 buy point in a cup base following a Nov. 10 breakout, according to IBD MarketSmith chart analysis. The buy area tops out at 182.65.

In spite of Chinese unrest, Pinduoduo (PDD) shares soared 12.7% Monday after earnings, clearing a cup base in heavy volume, according to MarketSmith pattern recognition. But the deep base, PDD’s extension from the 50-day line and general China risk are concerns.

Pinduoduo Q3 earnings shot up 256% year over year, easily beating views and well above Q2’s 157% growth. Revenue at the e-commerce company leapt 65% to $4.99 billion, with growth accelerating for a third straight quarter.

Monday Stock Market: Building Supplier Ignores Drag On Real Estate

Real estate stocks fell across the board but Builders FirstSource (BLDR) was an exception.

The building products and prefab home components supplier rose 2.5% Monday after boosting its stock repurchase program by $1 billion. The uptick provides authorization to buy back $1.5 billion worth of stock. This represents 16.8% of the $8.91 billion market capitalization as of Friday’s close.

Real estate stocks are struggling ahead of Tuesday’s Case-Shiller home price index, which economists expect to show a 1.3% drop. Housing data has been weakening for months.

Axsome Therapeutics (AXSM) soared 31.5% after its Alzheimer’s treatment met the goals of a Phase 3 study. The biotech is working on a treatment for Alzheimer’s patients who experience agitation. In the final-phase study, the drug called AXS-05 outperformed a placebo, delaying or preventing relapse in patients with agitation. The stock gapped above the 66.25 buy point of a cup with handle in heavy volume.

Among other hot biotech stocks, Catalyst Pharmaceuticals (CPRX) reversed lower and the stock is back below a buy point of 16.76 from a cup-with-handle base cleared last week. This market leader was last Monday’s IBD Stock Of The Day and is also a member of the IBD Tech Leader and IBD 50 Growth Stock to Watch lists.

The Innovator IBD 50 ETF (FFTY) fell 2.5%, weighed down by oil and solar stocks like PBF Energy (PBF), Shoals Tech (SHLS),  EOG Resources (EOG) and Civitas Resources (CIVI).

Follow Michael Molinski on Twitter @IMmolinski

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