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The S&P 500 and Nasdaq Composite indexes, along with US bond yields, all incurred losses amid yesterday’s choppy session.
The S&P 500 sustained its fifth day of losses yesterday, December 7th, as traders pondered the likelihood of a recession. In addition, the possibility of a protracted interest rate hiking cycle from the US Federal Reserve also weighed heavily on the leading index’s performance.
The S&P 500 declined 0.9% to 3,933.92, while the Nasdaq Composite also suffered marked losses. The tech-laden Nasdaq index dropped 0.51% to end the session at 10,958.55. However, the Dow Jones Industrial Average managed to scrape out a 1.58-point gain. DJIA finished the session at 33,597.92, as stocks generally experienced choppy trading.
During the session, the S&P 500 rose as much as 0.41% but also hit lows of 0.47%. As it stands, stocks are on pace for weekly losses, with the S&P down 3.38% and the Nasdaq off 4.39%. In addition, the Dow Jones Industrial Average is currently at a drawdown of 2.42%.
Bond Yields Down amid S&P 500 Losses, Stock Choppiness
Bond yields also slid amid the general underperformance of the major stock indices. The most notable among these declines saw the 10-year Treasury yield bottom out at 3.402% at a point.
Ryan Detrick, chief market strategist at the Carson Group, commented on the turbulent nature of the latest trading session. According to him, “The market’s kind of bobbing and weaving and finding its breath after the big rally off the October lows”. In addition, Detrick said that the market would continue this choppy trend until investors receive more fiscal clarity from the Fed’s December meeting. He also stated that November’s consumer price index (CPI) report could help to stabilize things and provide a stronger sense of direction.
Investors also look to take cues from more economic data this week, with the release of jobless claims data on Thursday. Data on November’s producer price index (PPI) and preliminary consumer sentiment is due for a release this Friday.
50 Basis Point Rate Increase
The general consensus estimate among observers, analysts, and economists is that the Federal Reserve would deliver a 50-basis point rate hike next. The US apex bank had previously hinted at this reduced rate increment to close out the year in the last few weeks. Increasing interest rates by 50 basis points is a welcome development and substantially lower than the preceding four rate hikes. However, concerns also abound about whether the Fed can genuinely pull off its projected plans to rein in inflation with progressively tapered rate hikes. In fact, despite suggestions that steep rate increases are a thing of the past, some investors still worry about a recession next year. Azhar Iqbal, director, and econometrician at Wells Fargo, perfectly reflected this investor sentiment in a recent note to clients, which read:
“All told, financial indicators point to a recession on the horizon.”
Furthermore, Iqbal argued that the S&P 500 had peaked ahead of recessions with a four-month average lead time across the last few business cycles.