By Alyssa Potenzone,
Money and Investing Writer
In the last six consecutive weeks U.S. stocks have witnessed the largest and most consistent gains of the year. However, the stocks on Monday, Nov. 9 ended with a sudden decline following the six week high.
This significant loss marks the S&P 500’s fourth successive incident of losses. In fact, this was the largest drop since Sept. 28.
The S&P 500 fell a total of 20.60 points amounting to nearly a 1 percent loss to 2,078.60. The loss was due to 90 percent of the index’s sectors, nine of the ten sectors, closing lower than the day prior.
S&P 500’s loss was not expected considering the prosperous six weeks before it. Randy Frederick, managing director of trading and derivatives at Schwab Center for Financial Research agreed with the before stated in that, “today’s selloff does not make a lot of sense because there wasn’t any big economic or corporate news. It is puzzling to see such a delayed reaction to a strong jobs report in an otherwise quiet week.”
Similarly, the Dow Jones Industrial Average dropped 179.85 points amounting to nearly a one percent loss to 17,730.48. The loss was so large because twenty eight of the index’s thirty components finished lower. One of those components, Caterpillar Inc. saw a steep loss of 2.6 percent.
The Nasdaq Composite fell too. It dropped to 5,095.30, a 51.82 point loss.
How come the S&P 500, Dow Jones Industrial Average, and the Nasdaq Composite all suffered a one percent loss if there was no major corporate news?
There is speculation that “weak overnight data from China added downward pressure on global equities.” Kim Forrest, senior analyst and portfolio manager at Fort Pitt Capital Group added, “markets cannot escape the gravitational pull of the Fed, so stocks are under pressure because of the fact that we may see interest rates rise in December.”
Worries of a higher rate were amplified when Friday, Nov. 6, the job report concluded last month’s 271,000 newly created jobs.
Anticipation of a higher rate has also affected the value of the U.S. dollar. The dollar compared to the euro is at a six-month high. Compared to the yen, the dollar saw its largest weekly increase since May. While the dollar’s value suffered a little these past few days, it is still up from where it was.
The suspected December rate hike has had major volatility effects.
Commonly, rate hikes often help recessions along. Currently however, the gross domestic product is near its lowest point ever for the Fed to raise rates.
If the Fed were to change its policy in December, bonds would be impacted faster than stocks would. Deutsche bank clarified, “at the end of the hiking cycle bond yields fall immediately.”
Charles Schwab strategists think “the hike in rates will cause yields between longer and shorter dated bonds to move closer together.”
Whereas high-yield bonds usually flourish when rates increase.
As for winners and losers, those companies that conduct most of their business in the United States are bound to win with the suspected increasing rates as domestic products become more attractive.
Internationally conducted businesses will lose as the increased value in the dollar makes their product more costly.
Certain stocks should be closely monitored including shares of Priceline Group Inc. (NASDAQ: PCLN) for its 9.6 percent loss following poor third-quarter numbers and Hertz Global Holdings Inc. (NYSE: HTZ) for its 13 percent loss due to lower revenue than anticipated. Whereas Berkshire Hathaway Inc. (NYSE: BRKA) doubled third-quarter profits due to its Kraft Heinz Co. (NASDAQ: KHC) investment.
A version of this article appeared in the Tuesday, November 17th print edition.
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