By Frances Yue and Andrew Keshner
US stocks traded lower on Tuesday afternoon as investors weighed the impact of weaker economic data from China and Europe, the first drop in US factory orders in months and cuts in international oil supplies.
How stocks are traded
On Friday, the Dow Jones Industrial Average DJIA was up 116 points, or 0.33%, to 34838, the S&P 500 SPX was up 8 points, or 0.18%, to 4516, and the Nasdaq Composite COMP was down 3 points, or 0.02% 14032 . US markets were closed on Monday for the Labor Day break.
What drives the markets?
After a positive close on Friday, investors emerged from the Labor Day holiday on Tuesday in a broadly risk-off mood.
Last week, the S&P posted its biggest weekly gain since June after the release of US jobs numbers for August, which economists say could be seen as just the right amount of job growth.
But on Tuesday it was announced that Saudi Arabia was extending its production cut by one million barrels a day for three months. The country’s official press agency reported the delivery cut. At the same time, Russia is expanding its own crude oil supply cuts. West Texas Intermediate crude for October delivery and Brent crude for November both rose on the news
The energy sector is the best-performing sector among S&P 500 stocks, up 1.3% on Tuesday, while most other sectors are in the red.
“Today is all about oil and interest rates,” said Kent Engelke, chief economic strategist and managing director of Capitol Securities Management. Investors questioning the news about the supply cut is how higher energy costs are affecting prices and what efforts the Federal Reserve is making to contain the hikes, Engelke said.
“What does this mean for inflation fundamentals?” he said. The result could be a renewed rise in inflation — albeit not compared to last year’s year-to-year highs, Engelke added.
Whatever the impact, it won’t help consumers who are suffering from rising costs, said Andrew Lipow, president of Lipow Oil Associates. Tuesday’s news took Wall Street by surprise, he said. Countries announced the cuts by the end of the year instead of reassessing them monthly, he noted.
“Consumers will pay more, certainly for gasoline, but diesel is a hidden tax that consumers pay for all the goods and services they buy,” Lipow said.
Federal Reserve Governor Christopher Waller, a key supporter of the rate hike within the central bank, said Tuesday the Fed could afford to wait and see what happens next. “There’s no indication that we’re going to have to do anything any time soon, so we can just sit there.” [and] Wait for the data,” Waller said in a CNBC interview.
The next Fed rate meeting is scheduled for September 19-20.
Despite the headwinds, according to Goldman Sachs, the likelihood of an imminent recession is becoming less and less. The probability of a recession in the next 12 months has fallen to 15% after forecasting a 20% probability in July and a 35% probability in March. That’s not to say there won’t be a slowdown — just that the slowdown by the end of the year will be “flat and short-lived,” according to the note from Goldman’s chief economist Jan Hatzius.
US factory orders fell 2.1% in July, the first drop after four months of gains.
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International investors also rate negative news.
A Caixin survey found China’s services sector grew at its slowest pace in eight months in August, further showing the country’s post-pandemic recovery is faltering.
Meanwhile, a survey in the euro zone showed that production in the union contracted at the fastest pace in almost three years.
“Sentiment towards China has deteriorated again as the picture of its slowing economy is painted with new brushstrokes,” said Susannah Streeter, Hargreaves Lansdown’s head of money and markets.
“The data has clouded relief that struggling real estate giant Country Garden has managed to make important interest payments on its debt, easing worries of financial sector contagion for the time being. China appears to be taking one step forward but two steps back.” , while optimism turns to pessimism in a day,” Streeter added.
company in focus
– Jamie Chisholm contributed to the report.
-Frances Yue
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09-05-23 1324ET
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