U.S. stocks are solidly lower as the markets continue to digest the economic implications of yesterday's 50-bp rate hike from the Fed. The rate hike was followed by 50-bp increases from the European Central Bank, Bank of England, and Swiss National Bank. The economic calendar also delivered a host of data points for the markets to contend with, as retail sales declined more than expected, industrial production declined, and manufacturing activity in New York and Philadelphia both contracted, though jobless claims moderated much more than expected. The equity front is relatively quiet, but Lennar Corporation posted mixed results and offered some cautious guidance, while Netflix is seeing pressure from a report about softer-than-expected ad-supported viewership. Treasury yields are mostly lower, and the U.S. dollar is gaining ground. Crude oil prices are dipping, and gold is dropping. Asia finished broadly lower, and Europe is also seeing widespread losses, with the global markets digesting mixed data and the flood of monetary policy decisions around the world.
At 10:56 a.m. ET, the Dow Jones Industrial Average is down 2.1%, the S&P 500 Index is dropping 2.2%, and the Nasdaq Composite is falling 2.6%. WTI crude oil is declining $0.57 to $76.71 per barrel, and Brent crude oil is decreasing $0.32 at $82.38 per barrel. The gold spot price is trading $30.60 lower to $1,788.10 per ounce, and the Dollar Index is advancing 0.7% to 104.43.
Lennar Corporation (LEN $90) reported Q4 earnings-per-share (EPS) of $4.55, including mark-to-market adjustments on technology investments and homebuilding impairments, and deposit write-offs. The company said excluding these items, EPS was $5.02. FactSet had estimated LEN to post earnings of $4.87 per share, on revenues of $10.17 billion, which rose 21.0% year-over-year (y/y) and compared to the Street's $9.97 billion forecast. The homebuilder's new orders and deliveries for Q4 missed estimates, and its gross margin also came in below projections. LEN issued Q1 new order and gross margin guidance that were below forecasts, though its deliveries outlook came in above expectations. Shares are trading modestly to the downside.
Netflix Inc. (NFLX $291) is dropping following a report from Digiday that the company has missed ad-supported viewership guarantees promised to advertisers and is having to offer some refunds. NFLX has not commented on the report.
The equity markets have been choppy as of late, with investors wrestling with the impact of aggressive monetary policy tightening from the Fed and how long and at what pace the Central Bank will continue to raise rates. Schwab's Chief Investment Strategist Liz Ann Sonders discusses in her article, U.S. Outlook: How Many More Times, Fed?, how Powell, among other Fed officials, has seemingly shifted his attention from the rear-view mirror to the windshield. She points out how inflation is a lagging indicator, but the impact of monetary policy changes is in the future.
Retail sales decline, jobless claims drop, manufacturing data lackluster
Advance retail sales (chart) for November were down 0.6% month-over-month (m/m), below the Bloomberg consensus forecast of a 0.2% decrease, and compared to October's unrevised 1.3% gain. Last month's sales ex-autos declined 0.2% m/m, compared to expectations of a 0.2% growth rate and as October's figure was negatively adjusted to a 1.2% gain. Sales ex-autos and gas also dipped 0.2% m/m, versus estimates of a flat reading, and compared to October's downwardly adjusted 0.8% increase. The control group, a figure used to calculate GDP, also came in 0.2% lower m/m, versus projections of a 0.1% gain, and following the prior month’s negatively revised 0.5% reading.
Weekly initial jobless claims (chart) came in at a level of 211,000 for the week ended December 10, well below estimates of 232,000 and the prior week's upwardly revised 231,000 level. The four-week moving average decreased by 3,000 to 227,250, and continuing claims for the week ended December 3 rose by 1,000 to 1,671,000, south of estimates calling for 1,674,000. The four-week moving average of continuing claims increased by 43,250 to 1,625,250.
The Federal Reserve's report on industrial production (chart) showed a 0.2% m/m decline in November, compared to estimates of a flat reading, and versus October's unrevised 0.1% dip. Manufacturing and mining output both fell, more than offsetting a jump in utilities consumption. Capacity utilization declined to 79.7%, versus estimates of a dip to 79.8% from the prior month's unrevised 79.9% rate. Capacity utilization remained near its long-run average.
The Empire Manufacturing Index, a measure of activity in the New York region, showed the index fell back into contraction territory (a reading below zero) for December. The index fell to -11.2 from the 4.5 reading that was posted in November, and compared to estimates of a move to a level of -1.0.
The Philly Fed Manufacturing Business Outlook Index surprisingly improved but remained deeper in contraction territory (a reading below zero) than expected for December. The index increased to -13.8 from November's -19.4 level, and versus estimates of an improvement to a reading of -10.0.
Business inventories rose 0.3% m/m in October, below forecasts calling for a 0.4% increase, after September's downwardly revised 0.2% advance.
Treasury rates are mostly lower, as the yield on the 2-year note is little changed at 4.26%, while the yield on the 10-year note is decreasing 4 basis points (bps) to 3.47%, and the 30-year bond rate is down 6 bps to 3.47%.
The markets continue to digest yesterday's monetary policy decision from the Fed, which delivered a 50-bp rate hike, a deceleration from the previous string of 75-bp rate hikes. Schwab's Liz Ann Sonders discusses the decision in her commentary, Listen to the (More Hawkish Fed) Music, where she notes how while progress has been made on inflation, Fed Chair Powell noted it is too early to declare victory.
Treasury yields and the U.S. dollar have moved higher this year amid this backdrop and Schwab's Chief Fixed Income Strategist Kathy Jones discusses in her article, Fixed Income Outlook: Bonds Are Back, how we see opportunities in 2023 for the bond market to provide attractive yields at lower risk than we've seen for several years. You can follow Kathy on Twitter: @KathyJones.
Europe seeing pressure after a string of rate hikes
European stocks are broadly lower in late-day action, with the markets digesting a plethora of rate hike announcements on both sides of the pond. The Fed in the U.S. got the ball rolling yesterday with its 50-bp rate hike, and today the European Central Bank (ECB), Bank of England (BoE), and Swiss National Bank all boosted their benchmark interest rates by 50 bps as well. The actions by the Fed and ECB were steps down from recent 75-bp rate increases and Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, discusses in his article, Central Banks Stepping Down, how central banks seem to be stepping down from aggressive rate hikes, and this could lead to a year-end "Santa Pause" rally for stocks. You can follow Jeff on Twitter: @JeffreyKleintop. BoE officials were split on the 50-bp decision, with most voting in favor of the size, while some wanted 75 bps, and others wanted to leave the rate unchanged. The ECB confirmed that it will start to shrink its balance sheet by 15 billion euros a month in the second quarter and the pace beyond that yet to be determined, per Bloomberg. This comes as the ECB upped its inflation outlook and lowered its GDP forecast. The euro is lower in volatile trading versus the U.S. dollar, with the ECB saying that rates must still rise significantly, and ECB President Lagarde offering some hawkish commentary in her customary press conference following the decision. The British pound is falling sharply versus the greenback. Bond yields in the Eurozone are gaining ground, while rates in the U.K. are moving lower.
The U.K. FTSE 100 Index is down 0.6%, France's CAC-40 Index and Italy's FTSE MIB Index are dropping 2.6%, Germany's DAX Index is falling 2.7%, Switzerland's Swiss Market Index is trading 2.2% lower, and Spain's IBEX 35 Index is decreasing 1.4%.
Asia lower following mixed data and Fed decision
Stocks in Asia finished lower following yesterday's monetary policy decision to raise rates again by a decelerated—but still aggressive—50 bps. The Central Bank also suggested rates will need to remain restrictive for a while as it has not brought down inflation enough to be comfortable. The Fed's announcement came ahead of today's monetary policy actions out of the U.K. and the Eurozone, with both expected to raise their benchmark interest rates by 50 bps. Inflation has been a main driver of aggressive monetary policy tightening around the globe and in his latest article, Global Outlook: Recovery and Risk, Schwab's Jeffrey Kleintop notes how markets may continue to see volatility in 2023 as they navigate between global economic growth and inflation fears, with central banks' decreasing rate hikes and China's reopening.
The markets continued to grapple with reopening optimism in China and Hong Kong, but the former is still being disrupted by a surge in new COVID cases. A host of mixed economic data in the region was also digested. Japan's export growth for November decelerated by a smaller amount than anticipated, and Australia's employment change came in higher than forecasted, though China's November industrial production rose at a smaller pace than projected and its retail sales for last month dropped more than estimated.
Japan's Nikkei 225 Index decreased 0.4%, with the yen giving up some of this week's rally versus the U.S. dollar late in the session. China's Shanghai Composite Index declined 0.3%, and the Hong Kong Hang Seng Index fell 1.6%. Australia's S&P/ASX 200 Index traded 0.6% to the downside, India's S&P BSE Sensex 30 Index dropped 1.4%, and South Korea's Kospi Index moved 1.6% lower.
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