Nasdaq ends at lowest level since June 22

U.S. stock benchmarks end lower Monday, with the Dow industrials and Nasdaq each dropping by more than 300 points, as concerns about sticker-than-expected inflation grow on rising oil prices.

How did stock benchmarks trade?

• The Dow Jones Industrial Average DJIA, -0.94% fell 324.54 points, or 0.9%, to end at 34,002.92
• The S&P 500 SPX, -1.30% fell 56.58 points, or 1.3%, to end at 4,300.46, its lowest close since July 19, according to Dow Jones Market Data.
• The Nasdaq Composite Index COMP, -2.14% declined 311.21 points, or 2.1%, to finish at 14,255.48 with the tech-heavy index off 7.3% from its Sept. 7 record close.

Last week was a rough one for U.S. stocks, as the S&P 500 dropped 2.2%, though the three major indexes each advanced on Friday.

On Friday, the Dow rose 483 points, or 1.43%, to 34326, the S&P 500 increased 50 points, or 1.15%, to 4357, and the Nasdaq Composite gained 118 points, or 0.82%, to 14567.

What drove the market?

A selloff for stocks deepened Monday, with markets succumbing to pressure in technology and tech-related stocks. Notably, the S&P 500’s communication services sector SP500.50, -2.11% closed 2.1% lower — led by Facebook Inc., which experienced widespread outages across all its platforms. The technology sector SP500.45, -2.36% fell 2.4%. Utilities and energy were the only sectors spared from the selloff.

“Investors, in my mind, are realizing or thinking through a wall of worry that includes the debt ceiling, higher oil prices and inflation, a weaker-than-expected earnings season, and a Federal Reserve that’s becoming less dovish,” said Lindsey Bell, chief investment strategist at Ally Invest, said via phone on Monday.  

Driving inflation-based fears was U.S. oil’s rally to a seven-year high, with international benchmark Brent BRN00, 0.39% at its highest since 2018. On Monday, the Organization of the Petroleum Exporting Countries and its allies kept their current agreement to gradually raise crude production each month, including a 400,000 barrels a day increase in November.

“Persistent inflation is becoming the stock market’s bogeyman in early October,” said Shawn Snyder, head of investment strategy at Citi U.S. Wealth Management. “Investors appear nervous that ongoing supply chain issues amid resilient consumer demand will lead to more lasting inflation than initially thought.”

Apart from inflationary pressures, discord in Washington “is increasing the tail risk that policymakers will make a mistake when addressing the debt ceiling,” Snyder wrote in an e-mail to MarketWatch.

The market has been under increasing pressure, with developments centered on those in Washington, D.C., where tense negotiations on the debt ceiling are playing out and negotiations on infrastructure spending and social spending have failed to achieve a resolution. According to The Wall Street Journal, Democrats were debating whether to reduce proposed programs or cut their duration to shave down the $3.5 trillion size of the social spending proposal.

In U.S.-China relations, President Biden’s top trade negotiator, U.S. Trade Rep. Katherine Tai, was quoted by the Washington Post on Monday as saying that China has failed to live up to its commitments under an agreement signed last year. “Our objective is not to inflame trade tensions with China,” she said in a speech at the Center for Strategic International Studies.

The main takeaway for investors may be that the U.S.-China trade war, which intensified under former President Donald Trump, isn’t going to end soon, despite a change in leadership at the White House. After a lengthy review of Beijing-Washington trade relations, the Biden administration has left in place Trump-era tariffs on Chinese imports. Senior officials also say they might take other punitive measures unless Chinese authorities respond to U.S. concerns.

In macro news, indebted Chinese property developer China Evergrande 3333, -3.91% said it may sell its property management arm. Traders have been concerned that Evergrande’s inability to pay debt will roil the Chinese economy, the second-largest in the world.

On the public health side, the CEO of BioNTech told the Financial Times that COVID-19 is likely to continue mutating to the point where it can escape vaccines and immune systems and that a new vaccine may be required in the future. Meanwhile, Johnson & Johnson JNJ and Moderna MRNA have applied for authorization from the FDA for their COVID-19 vaccine boosters and an advisory committee will discuss them at a meeting scheduled for Oct. 14 and Oct. 15.

In economic reports, U.S. factory orders rose 1.2% in August, beating the 1.1% estimate of economists surveyed by The Wall Street Journal.

October tends to be the most volatile month of the year for stocks, and the time when equities have suffered their two worst crashes in U.S. market history. Moreover, there’s a non-zero chance this month that the stock market will experience a one-day crash as bad as 1987’s Black Monday.

“We are in a difficult seasonal period and the market has been going through a personality shift, showing less of an inclination to buy the dip,” said Michael Reinking, senior market strategist at the New York Stock Exchange. “The re-rating and rotation out of growth stocks — those that are widely owned and heavily weighted within major indices — has accelerated to the downside and is responsible for much of the damage.”

Which companies were in focus?

• Facebook FB, -4.89% suffered widespread outages that kept users from using all its platforms for hours on Monday, adding to the social network’s miserable day. The company’s practices are also in the spotlight after comments from a whistleblower. A former employee appeared on CBS’ “60 Minutes” and accused the social-media company of putting profit before public good “over and over again.” The interview follows a series of reports by The Wall Street Journal called “The Facebook Files” suggesting, among other things, that executives were aware of the negative impact of its platforms on many users. Its stock fell 4.9% .
• Shares of Redhill Biopharma Ltd. RDHL were in focus on Monday after the company said it had new data from a Phase 2/3 clinical study evaluating its experimental oral antiviral opaganib in severely ill, hospitalized COVID-19 patients. Its stock rose 11.7%.
• AMC Entertainment Holdings Inc. AMC said the weekend set new post-opening records for global attendance, admission revenue and food and beverage sales, thanks to strong performances by “Venom: Let There Be Carnage” in the U.S. and James Bond’s “No Time to Die” internationally. Shares fell 4.4%.
• IMAX Corp. IMAX shares advanced 4.5% after it said it garnered $30 million in global box office receipts over the weekend to mark its strongest October weekend ever and its biggest weekend tally since December 2019. 
• Shares of Amplify Energy Corp. AMPY announced a large oil spill in Southern California over the weekend. Shares of the company dropped 43.8%.
• Cree Inc. has changed its name to Wolfspeed Inc. WOLF and the technology company begins trading Monday on the New York Stock Exchange under the ticker symbol “WOLF.” Its stock climbed 1.2%.
• Bed Bath & Beyond Inc. BBBY announced the launch of the Studio B home décor collection on Monday. Shares dropped 5.3%.
• FireEye Inc. FEYE shares slipped 3.4% after the cybersecurity company said Monday it will officially change its name to Mandiant Inc. and trade under the new ticker symbol ‘MNDT’ from Tuesday. 

How were other assets trading?

• The yield on the 10-year Treasury note TMUBMUSD10Y rose 1.7 basis points to 1.481% Monday, after putting in its sixth straight weekly rise last week, according to Dow Jones Market Data.
• The ICE U.S. Dollar Index DXY, a measure of the currency against a basket of six three major rivals, fell 0.2% Monday.
• Oil futures CL00 closed higher, with the U.S. benchmark rising 2.3% to settle at $77.62 a barrel Monday after OPEC and its allies agreed to hold steady previously agreed upon increases in crude output starting in November. Gold futures  GC00, -0.53% closed 0.5% to settle at $1,767.60 an ounce.
• In European markets, the Stoxx Europe 600 index SXXP closed down 0.5%. The FTSE 100 Index UKX, -0.23% ended 0.2% lower.
• The Nikkei 225 index NIK closed down 1.1%. China markets were closed for a the Golden Week holidays. Hong Kong’s Hang Seng HSI, 0.32% closed down 2.2%.