Stretched Valuation Worries Keep Stocks In Check, Factory Orders Sank In October

Barry Adams
04 Dec, 2023
New York City

Market indexes fell on Monday after rising for five weeks in a row amid positive sentiment and optimism about the interest rate path, which met the worries of stretched valuations.

The S&P 500 index and the Nasdaq Composite declined after two popular indexes advanced for five consecutive weeks in a row, and investors worried that stock valuations were running ahead of market fundamentals.

In economic news, factory orders declined 3.6% in October after rising for two months in a row, the U.S. Census Bureau reported Monday.

New orders for all manufactured goods increased by 0.5% from a year ago, but durable goods orders fell 5.4% from the previous month and rose 4.0% from a year ago.

Orders for manufactured goods excluding transportation declined 1.2%, and orders excluding defense dropped 4.2% from the previous month, fell 1.4%, and rose 0.2% from a year ago.

Volatile transportation orders declined 14.7% from the previous month but rose 11.1% from a year ago.

On Friday, the S&P 500 index closed at a new 2023 high and surpassed the high seen in March 2022 after investors supported the view that interest rates are near peak rates and the Federal Reserve may begin to cut rates in early 2024.

Federal Reserve Chairman Jerome Powell stressed that talks of rate cuts are "premature," but investors still bid up stocks in anticipation of another rate pause decision by policymakers at the end of a two-day meeting on December 13.

Market participants widely believe that interest rates are likely to stay on hold following the recent string of inflation data suggesting a steady decline over the last eight months, largely driven by a decline in the energy price and comparison with a higher base.

Despite the Federal Reserve talking tough on inflation and lifting rates by 11 times between March 2022 and July 2023, the economy is still expanding and wages are still gaining at rates that are inconsistent with the central bank's target rate of 2%.

Looking ahead, investors are awaiting nonfarm payroll data to be released on Friday, and economists are expecting the economy to add at least 175,000 net new jobs in November.

The November JOLT report is also scheduled to be released on Tuesday, and investors are anticipating job openings of 9.6 million, still higher than the pre-Covid high of 6.5 million in 2019.

 

U.S. Indexes and Yields

The S&P 500 index declined 0.6% to 4,564.36, and the Nasdaq Composite decreased 1.1% to 14,153.88.

The yield on 2-year Treasury notes increased to 4.62%, 10-year Treasury notes inched higher to 4.25%, and 30-year Treasury bonds were unchanged at 4.43%.

Crude oil decreased $0.74 to $73.38 a barrel, and natural gas prices fell 14 cents to $2.67 a thermal unit.

Gold decreased $46.34 to $2,024.09 an ounce after the U.S. dollar eased.

The dollar index, which weighs the U.S. dollar against a basket of foreign currencies, edged lower to 103.34.

 

U.S. Stock Movers

Spotify Technology jumped 6.4% to $192.30 after the music streaming company announced its plan to lay off 1,500 employees, or 17% of its staff.

The company said it hired too many people in 2020 and 2021, and it needs to control its costs and adjust to new market realities.

Alaska Air Group declined 13.5% to $34.27 after the regional airline agreed to rival Hawaiian Airlines in a deal worth $1.9 billion.

Alaska Air agreed to pay $18 a share to the airline and assume $900 million of the company's debt.

Hawaii Airlines parent Hawaiian Holdings surged 181% to $13.65 in early trading, and cautious investors worried about the steep regulatory hurdles faced by the merger.

Coinbase Global jumped 9.2% to $146.10, and MicroStrategy advanced 8.2% to $571.0 after bitcoin surpassed the $40,000 level.

The surge in bitcoin also lifted the stock prices of other cryptocurrency-linked companies.

Marathon Digital Holdings soared 13% to $15.53, and Rio Platforms advanced 11.1% to $15.30.

 

European Markets Declined After Rallying Three Consecutive Weeks

Stock market indexes in Europe struggled to advance in Monday's trading, and the euro edged slightly lower.

Benchmark indexes in Germany, France, and the U.K. lacked direction, and investors reviewed the latest economic data from Spain and Germany.

Moreover, Swiss consumer price inflation in November slowed to 1.4% from a year ago, the Swiss Federal Statistics Office reported Monday.

Overall inflation slowed from 1.7% in October and dropped to a two-year low after inflation slowed for food and beverages, transportation, and healthcare.

The core rate of inflation, which excludes food and energy prices, slowed to 1.4% from 1.5% in the previous month.

 

Unemployed People Decline In Spain

The number of people registered as jobless decreased by 24,573 or 0.9% to 2.73 million in November, the Ministry of Employment and Social Security reported Monday.

The total count of unemployed declined to the lowest for a November month since 2007 after unemployment fell by 17,335 in services, by 2,654 in industry, by 2,175 in agriculture, and by 1,072 in construction.

A separate report by the ministry showed the net increase in employment in November rose by 10,350, increasing the total number of jobs to 20.75 million.

 

Germany's October Trade Surplus Soared

The German trade surplus rose more than expected after imports fell at a faster pace than exports in October, the Federal Statistics Office, or DeStatis, reported Monday.

Seasonally adjusted exports declined 8.1% to Є126.4 billion and imports declined 16.3% to Є108.6 billion.

Exports declined 0.2% and imports fell 1.2% from the previous month, largely because of the weakness in energy prices.

Trade surplus in October rose to Є17.8 billion from Є16.7 billion in September and Є7.8 billion a year ago.

Calendar and seasonally adjusted exports to the member states of the European Union declined by 2.7% to Є67.9 billion, and imports fell by 2.8% to Є56.9 billion.

Exports to countries outside the European Union increased by 2.9% to Є58.5 billion, and imports rose 0.8% to Є51.8 billion.

Germany's exports to the United States, its largest market, rose 5.7% to Є13.5 billion; to the People's Republic of China, they increased 1.5% to Є7.9 billion; and to the U.K., they advanced 5.6% to Є6.6 billion.

 

Europe Indexes and Yields

The DAX index increased 0.04% to 16,404.76, the CAC-40 index fell 0.2% to 7,332.59, and the FTSE 100 index decreased 0.2% to 7,512.96.

The yield on 10-year German bonds decreased to 2.36%; French bonds traded lower to 2.93%; the UK gilts declined to 4.17%; and Italian bonds inched lower to 4.13%.

The euro traded lower to $1.087, the British pound inched lower to $1.267, and the U.S. dollar eased to 87.21 Swiss cents.

Brent crude decreased $0.49 to $78.35 a barrel, and the Dutch TTF natural gas increased by €3.39 to €40.10 per MWh.

 

Europe Stock Movers

Energy complex stocks declined on worries about the OPEC+ production quota, and crude oil prices dropped as much as 0.5%.

BP decreased 1.9% to 469.15 pence, Shell dropped 1.7% to Є29.85, Repsol fell 1.7% to €13.94, and TotalEnergies dropped 2% to €61.06.

Mining stocks lacked direction on the ongoing worries about China's property sector.

Glencore declined 1.8% to 449.40 pence, Antofagasta fell 1.5% to 1,473.0 pence, and Anglo American dropped 2.9% to 2,244.50 pence.

Luxury stocks in Paris rebounded after dropping the previous week in the hopes that the U.S. Federal Reserve will keep rates steady at the end of its policy meeting next week.

LVMH added 0.6% to €699.50, Kering jumped 2.7% to €403.65, Richemont increased 0.8% to CHF 110.80, and Salvatore Ferragamo advanced 1.4% to €11.86.

Automobile stocks traded mixed, and investors are worried that higher interest rates for longer may negatively impact demand for vehicles in 2024.

Volkswagen Group added 0.1% to €107.14, Mercedes-Benz Group fell 0.2% to €60.0, BMW fell 0.9% to €95.35, Ferrari decreased 0.9% to €325.90, and Renault dropped 0.2% to €36.18.

Financial stocks traded mixed after bond yields drifted lower and the euro and the British pound held firm against the U.S. dollar.

Barclays added 0.5% to 142.48 pence, HSBC fell 0.3% to 602.50 pence, Deutsche Bank eased 0.1% to €11.51, UniCredit declined 0.2% to €11.51, Societe Generale rose 0.7% to €23.05, and UBS Group declined 0.2% to CHF 24.78.