With Fading Hopes of One Last Rally, U.S. Indexes Drop 1%

Barry Adams
28 Dec, 2022
New York City

Major averages failed to get traction and turned lower in the afternoon trading as investors focused on a growing list of worries. 

A toxic mix of hawkish central bank stance worldwide, looming recession in the coming year and ongoing earnings slowdown kept investors on sidelines. 

The pending home sales data released today signaled a sharp slowdown in home sales after record home prices and rising mortgage rates negatively impacted sales in November. 

Benchmark indexes are set to close the worst year since 2008 after the Federal Reserve raised rates six times and lingering recession worries kept investors on edge. 

The Nasdaq Composite index is down 35.2% and the S&P 500 index is down 21..1% in the year so far. 

Investors are also bracing for earnings downward revision as the pandemic era stimulus fades and supply chain driven inflation hovers near a multi-year high.  

China's reopening is a double edged sword, on one hand rising business activities will accelerate global growth but on the other hand it will fuel inflation as demand for commodities and oil picks up. 

 

Indexes In Review 

The S&P 500 index increased 1.2% to 3,783.0 and the Nasdaq Composite index advanced 1.3% to 10,213.29. 

Crude oil decreased $1.52 to $78.50 a barrel and natural gas dropped 8% or 34 cents to $4.75 a thermal unit. 

The yield on 2-year Treasury notes inched lower to 4.36%, 10-year Treasury notes eased to 3.88% and 30-year Treasury bonds to 3.98%. 

 

Pending Home Sales Activities Drop In November 

Pending home sales declined for the sixth month in a row in November, the National Association of Realtors said Wednesday. 

The number of transactions declined in all four regions on a monthly basis and from a year ago. 

Pending home sales index dropped 4.0% to 73.9 in November and plunged 37.8% from a year ago. The index of 100 is equal to contract level activities in 2001. 

"Pending home sales recorded the second-lowest monthly reading in 20 years as interest rates, which climbed at one of the fastest paces on record this year, drastically cut into the number of contract signings to buy a home," said NAR Chief Economist Lawrence Yun.

 

U.S. Stock Movers 

Tech stocks rebounded following a 7-day decline and a slight easing in bond yields. 

Tesla jumped 3.3% to $112.70 but Apple Inc inched down 3.1% to $126.04 and Microsoft fell 1.1% to $234.50. 

Apple dropped to a new 52-week low. 

AMC Entertainment Holdings Inc fell 4.7% to $3.8 after chief executive Adam Aron requested the company's board to freeze his salary and recommended other executives to follow his move. 

Southwest Airlines Co declined 5.2% to $32.19 and the discount carrier struggled to normalize its flight schedule after canceling thousands of flights over the holiday weekend. 

The stock is nearing its one-year low. 

Shares of ride hailing companies were in focus on the expectations of improving demand for travel services. 

Lyft Inc increased 2.5% to $10.17 and dropped below $10 a share for the first time since the ride hailing company priced its public offering in 2019. 

Lyft priced its initial public offering at $72 a share and sold 32.5 million shares and raised $2.3 billion on March 28, 2019. 

Uber traded up 0.8% to $24.59 and extended this year's loss to 44%. 

Uber priced its shares at $42 a share and raised $8.1 billion in a public offering on May 10, 2019. 

China-linked stocks edged lower and trimmed previous day's gains after authorities stopped collecting data on coronavirus infection data. 

With no data available from the government agencies, investors are struggling to understand the scope of the health epidemic and its impact on business activities. 

Las Vegas Sands declined 4.7% to $46.19 and Wynn Resorts fell 5.0% to $80.04. 

Alibaba Group Holding declined 2.9% to $87.23. 

 

European Markets Trim Week's Gains, Wild Swings In Natural Gas 

European markets fell on lingering recession and rising rate worries but commodities dominated index in the UK closed higher. 

Continental markets erased gains of the previous session after optimism about China reopening subsided and authorities said they will no longer publish infection data. 

The lack of infection data makes it harder to detect the virus spread i n the second largest economy and how long it will take before social mobility and economic activities resume to pre-pandemic pace. 

The FTSE index closed higher after a long holiday and adjusted to the advance in copper, coal and iron ore and crude oil prices during the previous sessions in the U.S. and Europe. 

 

Market Indexes In Review 

European markets closed down and the UK index reflected higher commodities prices in the previous session on the continent. 

Tech stocks edged lower after bond yields rose and energy stocks closed down in Paris and Frankfurt after crude oil prices eased and natural gas prices dropped to the low last seen on January 21. 

The DAX index fell 0.5% to 13,925.60, the CAC-40 index declined 0.6% to 6,510.49 and the FTSE 100 index added 1.9% to 7,497.19. 

 

Bond Yields at 10-year Highs 

German bond yields rose to 10-year highs on the worries that the resumption in activities in China will add fuel to rising inflation after commodities prices rebounded. 

The yield on 10-year German Bunds inched up to 2.50%, French bonds rose to 3.04%, UK gilts edged higher to 3.65% and Italian bonds increased to 4.63%.  

 

Energy Prices Drop On Falling Demand

Crude oil fell after rising in the previous session and natural gas prices dropped to the low last seen in January amid elevated storage and milder weather forecast for the next two weeks. 

Natural gas prices swung in a wide range and TTF Futures dropped to as low as