⦁ Dow Jones tumbled for the second straight day on Monday.
⦁ Rising yields and Fed’s tightening are weighing on the stocks.
⦁ Only technology stocks performed well on the day.
In response to a spike in Covid-19 cases in China, the stock market tumbled on Monday.
Dow Jones Stock Market Analysis
After falling 981 points on Friday, the Dow Jones Industrial Average fell 224 points, or 0.7%, in daily trading. S&P 500 lost 0.9% and Nasdaq Composite remained flat.
Since the Federal Reserve is trying to tame high inflation, the stock market has already been spooked by rising Treasury yields and the prospect of much higher interest rates. So in the wake of thousands of new Covid cases reported in Shanghai on Sunday, he decided to worry about the impact on China of rising Covid cases.
Stocks that are sensitive to the economy suffered the most losses. Materials Select Sector SPDR (XLB) ETF fell 2.2%, while Industrial Select Sector SPDR (XLI) ETF fell 1.6%.
Growth fears also weighed on oil prices, with WTI crude falling more than 5% to just under $97 a barrel, prompting a general rush towards safer assets. As a result, the price of 10-year government bonds rose, while the yield fell to 2.79% from 2.92% on Friday.
Stocks in the technology sector performed best, as they are more dependent on long-term changes in the industry than on strong economic growth. As a result, the 10-year bond yield has also declined. The low long-term bond yields make future earnings more valuable, and many high-growth technology companies are valued on the assumption that they will reap some of their earnings in the future.
Stocks overall fell, except in technology. FactSet reports that more than three-fourths of stocks in the S&P 500 were down.
NatAlliance’s Andrew Brenner wrote that sentiment is bad. A “soft landing” means the Fed can raise interest rates to curtail inflation without hurting the economy’s growth. A “soft landing” means the Fed can lower interest rates to curb inflation without harming the economy’s growth.
The market’s decline may now be stemmed by strong corporate earnings. About 173 S&P 500 companies will announce earnings this week, including Microsoft (ticker: MSFT), Amazon (AMZN), Apple (AAPL), Alphabet (GOOGL), PepsiCo (PEP) and United Parcel Service (UPS).
The stock market has so far not been affected much by earnings season. The reason is that macro concerns could slow earnings growth beyond the current quarter, which means earnings results aren’t always representative of how earnings will grow in the future.
Jonathan Golub, Head of US Account Operations, wrote that the market reaction was muted despite the strong results. Equity strategist at Credit Suisse said, “This is often the case when macro headlines confuse investors.”
Here are the five stocks that moved on Monday:
Over the weekend, Twitter (TWTR) met with Tesla CEO Elon Musk to discuss the $43 billion takeover bid. As a result, the stock is up 4%.
Attribution Blizzard (ATVI) shares fell 1% after the company posted earnings of 64 cents a share on sales of $1.77 billion, down from a valuation of 71 cents a share, which was below the expected $1.82 billion.
KO shares declined 0.1% after Coca-Cola (KO) reached $10.5 billion in sales.
Raymond James upgraded AMD shares from Outperform to Active Buy, resulting in a 1.4% rise.
Bank of America downgraded Deere & Co. (DE) to neutral from Buy, resulting in a 6.8% decline in shares.
Dow Jones technical analysis: Bears dominating
The Dow Jones index fell sharply below the key SMAs on the 4-hour chart. The dip is almost vertical, which shows a strongly bearish behavior. Any upside recovery will remain capped by the 3400 – 3450 zone.
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