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Stock Market News for Dec 6, 2022

Wall Street closed sharply lower on Monday despite robust economic data. A hotter-than-expected ISM Services report for November raised concerns that the Fed might be deterred from going slow on its policy tightening measures. The 10-year treasury yield rose significantly in apprehensions of an economic slowdown as a result. All three major indexes ended in the red.

How Did The Benchmarks Perform?

The Dow Jones Industrial Average (DJI) fell 1.4% or 482.78 points to end at 33,947.10 points. Twenty-nine components of the 30-stock index ended in negative territory, while one ended in the positive.

The S&P 500 lost 1.8% or 72.86 points to close at 3,998.84 points. All 11 broad sectors of the benchmark index ended in negative territory. The Energy Select Sector SPDR (XLE), the Consumer Discretionary Select Sector SPDR (XLY) and the Financials Select Sector SPDR (XLF) decreased 3%, 2.9% and 2.5%, respectively.

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The tech-heavy Nasdaq dropped 1.9% or 221.56 points to finish at 11,239.94 points.

The fear-gauge CBOE Volatility Index (VIX) increased 8.9% to 20.75. A total of 10.8 billion shares were traded on Monday, lower than the last 20-session average of 11 billion. The S&P 500 recorded six new 52-week highs and four new lows, while Nasdaq posted 105 new highs and 133 new lows.

ISM Services Number Weighs In On The Market

The services sector in the U.S. picked up unexpectedly in November, according to the services PMI report published by the Institute for Supply Management. Non-manufacturing PMI rose to 56.5 in November against a consensus of 53.7 for the period. The unrevised number for October was 54.4. Usually, any reading above 50 indicates expansion in the services sector, but the November number reflects an 11-month high.

Sectors like construction, healthcare and social assistance, retail trade, professional, scientific and technical services rose last month, according to the report, but information, wholesale trade and management of companies and support services declined.

Last week’s report of strong jobs and wage growth was also reflected in the suddenly accelerating services sector, even as manufacturing activity subsided in the same period. Investors remain apprehensive that upon seeing these numbers, the Fed might infer that it has not done enough to dampen market demand.

Under normal circumstances, a thriving services sector would be great for the market. But in the current scenario, market participants are eagerly waiting for economic indicators to show that business activity across sectors has slowed somewhat. This would curb inflation and the Fed would see its stringent measures as taking effect, and hence cut the market some slack with regard to further interest rate hikes.

With the strong services sector following robust labor market numbers from last week, chances of yet another 75 bps hike in December cannot be ruled out, and a minimum of a 50 bps hike is almost a lock-in. Stocks slid as the report emerged in the early hours.

The yield on the U.S. 10-year Treasury note rose 9 percentage points to 3.588% as stock prices fell, in apprehension that the Fed might continue with its monetary policy tightening.

Oil Prices Become a Drag On The Market

Even though the energy sector buoyed on the news that OPEC+ (including Russia) had decided on Sunday to stick to its October plan of cutting output by 2 million barrels per day till the end of 2023 and will not do it any longer or cut output anymore, oil prices fell on fear of demand-side slowdown induced by the Fed. Oil prices were a major drag on the market on Monday.

Brent crude settled down $2.89, or 3.4%, at $82.68/barrel. WTI crude fell $3.05, or 3.8%, to $76.93/barrel. Both benchmarks had earlier risen more than $2 on hearing from the OPEC+, before reversing direction.

Consequently, shares of EQT Corporation EQT and Marathon Petroleum Corporation MPC slid 7.2% and 4.9%, respectively. Marathon Petroleum carries a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

Economic Data

Factory Orders for October, up 12 of the last 13 months, increased $5.8 billion or 1% to $556.6 billion, the U.S. Census Bureau reported today. This follows a 0.3% increase in September.

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