Worries About China Unrest Contribute To Sell-Off On Wall Street

wallstreet oct17 28nov22 lt

Stocks moved sharply lower over the course of the trading session on Monday, largely offsetting the strong upward move seen last week. With the steep drop on the day, the Dow pulled back well off last Friday's seven-month closing high.

The major averages climbed off their worst levels going into the close but remained firmly negative. The Dow tumbled 497.57 points or 1.5 percent to 33,849.46, the Nasdaq plunged 176.86 points or 1.6 percent to 11,049.50 and the S&P 500 dove 62.18 points or 1.5 percent to 3,963.94.

Concerns about the latest developments in China contributed to the substantial pullback on Wall Street, as widespread protests against the Beijing's zero-Covid policy broke out over the weekend.

A recent surge in new Covid cases in China has led officials to impose new restrictions in several major cities, dashing hopes the world's second-largest economy was on the way toward easing curbs.

Craig Erlam, senior market analyst at OANDA, said the protests "highlight how increasingly frustrated the public is becoming with the leadership's zero-Covid policy."

"Record cases across multiple cities are putting the policy to the test and the unrest highlights the enormity of the challenge facing President Xi Jinping and his commitment to zero-Covid," Erlam said.

He added, "The combination of these creates huge uncertainty, both in terms of how the protests are handled and what the whole experience means for the future of the policy and the economy."

The weakness on Wall Street may also have reflected lingering uncertainty about the outlook for interest rates ahead of next month's Federal Reserve meeting.

While the Fed is widely expected to slow the pace of interest rate hikes next month, the minutes of the central bank's early November meeting suggested some officials think rates will be to be raised higher than previously anticipated.

Traders were also looking to the release of some key economic data in the coming days, including the Labor Department's closely watched monthly jobs report on Friday.

Sector News

Gold stocks showed a substantial move to the downside on the day, resulting in a 4.3 percent plunge by the NYSE Arca Gold Bugs Index.

The sell-off by gold stocks came amid a decrease by the price of the precious metal, with gold for December delivery falling $13.70 to $1,740.10 an ounce.

Considerable weakness was also visible among airline stocks, as reflected by the 3.1 percent nosedive by the NYSE Arca Airline Index.

Energy stocks also saw significant weakness even though the price of crude oil recovered from an eleven-month low to close notably higher.

Commercial real estate, semiconductor and computer hardware stocks also saw notable weakness, moving lower along with most of the other major sectors.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved mostly lower during trading on Monday. Japan's Nikkei 225 Index fell by 0.4 percent, while China's Shanghai Composite Index slumped by 0.8 percent.

The major European markets also moved to the downside on the day. While the German DAX Index tumbled by 1.1 percent, the French CAC 40 Index slid by 0.7 percent and the U.K.'s FTSE 100 Index edged down by 0.2 percent.

In the bond market, treasuries moved modestly lower over the course of the session after seeing early strength. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, inched up by 1.2 basis points to 3.703 percent.

Looking Ahead

Following a quiet day on the U.S. economic front, trading on Tuesday may be impacted by reaction to reports on home prices and consumer confidence.

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