Stocks were unable to rebound from last week’s selling on Monday, with a midday swoon leading to another day off losses for the S&P 500 and Nasdaq. The Dow finished near the flat line, eking out a fractional gain on the session.
With the retreat, the S&P 500 slipped back below 4,200 and the Nasdaq recorded its lowest close since December 2020.
The selling came amid a swirl of uncertainty. Along with the ongoing fighting in Ukraine and a reemergence of COVID concerns in China, investors looked ahead to a Federal Reserve decision on interest rates due out later this week.
The Dow (DJI) fared the best out of the major averages, essentially ending the day flat. The S&P (SP500) reversed its earlier advance to end -0.7%. Similarly, Nasdaq (COMP.IND) erased modest gains from earlier in the session to show a closing loss of -2%.
Looking at the closing numbers, the Dow eked out a gain of 1.05 points to close at $ 32,945.24. Meanwhile, the S&P 500 retreated 31.20 to finish at 4,173.11, finishing below 4,200 for the first time since March 8.
Monday’s losses in the Nasdaq were even more pronounced. The index plunged 262.59 points to end at 12,581.22.
Reflecting the general weakness that set in during the middle of the day, seven of the 11 S&P sectors ended with losses, with a 2.9% drop in Energy leading the way. Financials represented the best performing segment.
Ahead of the Fed meeting later this week, rates rose sharply on the session. The 10-year Treasury yield gained about 13 basis points to 2.14%, while the 2-year increased 11 basis points to 1.86%.
Looking at the broader picture, Goldman Sachs cut its 2022 forecast for the S&P to 4,700 from 4,900 citing growth concerns.
Despite the negative headlines, Kinsale Trading saw signs of hope headed into the session, noting that “the S&P 500 did not fall to fresh lows (last week), and we think that’s notable.”
“More specifically, this market could be setting up for a near-term rally if we get any good news, eg a lasting ceasefire in Ukraine, the Fed not being as hawkish as feared, positive supply news on oil, etc. And that rally could easily send stocks back to the 4,500-4,600 range in part because sentiment has become so palpably negative, “the firm noted.
However, Kinsale warned of ongoing challenges over the coming month, arguing that even a resolution of the Russia / Ukraine conflict would not necessarily constitute a “material bullish catalyst.” Instead, the firm sees the Fed and inflation as the main headwinds facing the market.
“For a rally to be sustainable towards the new highs we need to see 1) The Fed be very gradual in rate hikes and, more importantly, Quantitative Tightening, 2) Inflation peak and recede, 3) Corporate earnings hold steady and 4) Geopolitical calm, “the company argued. “At this point, none of those things are more likely than not!”
Ceasefire talks between Russia and Ukraine continued, but on the ground fighting continues, with Kyiv facing heavy shelling. The Kremlin said “Ukraine operations” will be completed “on schedule.”
In Asia, China’s Shenzhen region is under lockdown, which will add more problems to supply chains.
“International consumers are unlikely to notice; production will shift, and any delay is roughly the difference between free delivery with Amazon Prime and free delivery without Amazon Prime,” UBS chief economist Paul Donovan said. “However, markets do seem to be nervous about the effectiveness of the zero-tolerance policy, and the potential for future disruption.”
Among active stocks, Moderna is the biggest gainer in the S&P as vaccine makers rallied.