The stock market closed sharply lower for a second straight day Tuesday as a strong U.S. economy kept investors worried about interest rates. Tuesday's narrower-than-expected October U.S. trade gap didn't help. Oil, tech and communications stocks led declines.
The Nasdaq composite fell 2% while the S&P 500 lost 1.4%. The Dow Jones Industrial Average dropped 1%. The small-cap Russell 2000 index fell 1.5%.
Volume fell on the NYSE and the Nasdaq vs. the same time on Monday, early data showed.
The S&P 500 has dropped below its 200-day moving average, a key area to watch to gauge the direction of the market. The index is suffering its biggest pullback in nearly a month and has settled below the 4,000 level.
The yield on the benchmark 10-year Treasury note fell 5 basis points to 3.53%.
Crude oil plunged 3.3% to $74.36 per barrel.
All 11 S&P sectors fell Tuesday with the exception of the utilities sector, which closed up 0.7%. The S&P Communications Sector ETF closed down 2.9%, making it the worst-performing sector. It was followed by the Energy Sector ETF which dipped 2.5% and the Technology Select Sector ETF which slid 2.1%.
Stock Market Falls On Strong U.S. Economic Data
The U.S. trade deficit widened in October as exports fell on slow demand for U.S. energy goods such as oil and natural gas. The trade gap in goods and services expanded in October to a seasonally adjusted $78.2 billion, the Commerce Department said Tuesday. That's up from a revised $74.1 billion in September. But the report was not as bad as the $80.8 billion shortfall that Econoday economists expected.
Meanwhile, economists remain concerned that the strength of the U.S. economy will prompt other central bank chiefs to raise rates in their countries, potentially sending the global economy into a recession.
Goldman Sachs Chief Executive David Solomon said Tuesday that the firm will likely have to trim its operations as it deals with a slowing economy.
"It's a natural phenomenon that you therefore have to trim in some areas and pull back, and so we're going through the process of thinking about how we're going to do that," Solomon said in a speech at The Wall Street Journal's CEO Council Summit. "But for sure, we'll have to narrow our footprint a little bit."
GS stock closed 2.3% lower.
High Rates Mean Investors Will Need To Focus On Companies
Separately, Jeremiah Buckley, portfolio manager at Janus Henderson Investors, said Tuesday in his market outlook for 2023 that he believes company-level factors will shape longer-term progress for U.S. equities.
"Elevated inflation and the Federal Reserve's (Fed) potent response now dominate many investors' decisions," he said. "As the stimulative environment of the past decade rapidly fades, we believe the market will become less thematic and capital appreciation going forward will be driven by several factors at the individual company level."
Currently, the Street pegs the probability the Fed will raise rates by 0.5% in its meeting next week at 77%. Odds for a 75-basis-point hike are 23%, according to the CME FedWatch tool.
Exxon Mobil fell another 3% and dropped out of its buy zone from a 105.67 entry. The drop came even though CEO Darren Woods said Tuesday that global demand for oil and gas won't peak for decades.
Woods said policymakers need to focus on energy affordability and reliability, in addition to addressing climate change. "It's difficult to see progress being made in the short-term," he said.
Exxon CEO Gives Outlook For Oil Demand
However, Woods says the company is not shifting its strategy to invest in renewable energy, as some of its European peers are. Instead, Exxon will continue investing heavily in oil and gas projects while also reducing its own carbon emissions.
Texas-based electric power utility NRG fell 15% in huge volume, gapping below the 200-day moving average. The company announced it is acquiring home-security business Vivint for $2.8 billion in cash. NRG Energy broke out of a cup base Nov. 7 but that breakout failed about a week later. The break of the 200-day line — following a drop below the 50-day line — leaves the stock in a clear sell situation.
Dow Jones leader Microsoft's shares fell 2% amid concern that Microsoft is pushing against antitrust laws in its $69 billion plans for acquiring Activision Blizzard. Activision's popular "Call of Duty" game will be available on Sony's PlayStation for 10 years if the deal goes through.
Dow Jones financial giant JPMorgan rose 0.2% after the stock was double upgraded by Morgan Stanley analyst Betty Graseck to a buy from sell.
Auto Parts Retailer Falls Despite Topping Estimates
AutoZone shares fell 2.8% despite better-than-expected results for its fiscal first quarter. The stock is close to a round-trip signal. Investors appear to have focused on inventory, which the company reported increased 17.6% over the same period last year. This increase was "driven by inflation" and by "growth initiatives," the company said.
GitLab shares soared 9.4% after the company reported earnings and sales that easily beat analysts' estimates. GitLab's third quarter sales of $113 million grew 69% while a loss of 10 cents per share was less than the 16-cent loss in Q3 of 2021.
Chipmaker Taiwan Semiconductor Manufacturing announced it's building a second chip plant in Arizona, upping its investment there from $12 billion to $40 billion. TSM shares lost 2.5%. According to reports, Apple, Advanced Micro Devices and Nvidia will be the first to buy TSM's U.S.-made chips, starting in 2024.
Electric-vehicle giant Tesla traded down 1.4% Tuesday.
Biotechs Fall In Spite Of Company News
Mirati Therapeutics plunged 23% even though the biotech firm said almost half of patients responded to its lung cancer regimen. The shares triggered the 7% sell rule from a cup base. Investors appeared to question whether Mirati could take on traditional chemotherapy. If approved, the drug would rival Amgen's Lumakras.
Royal Caribbean was down over 3% after JPMorgan analyst Daniel Adam downgraded the stock to underweight with a price target of 47.
AeroVironment reports its second-quarter financial results this afternoon. The drone maker's earnings are expected by Wall Street analysts to nose-dive — even as its unmanned aerial vehicles play a significant role in the war in Ukraine.
Costco, GameStop and Campbell Soup report earnings on Wednesday. On Thursday, Lululemon and Broadcom are on tap.
Shares of Costco have fallen below the 50-day line as the retailer continues a steep decline. Meme stock GME has also fallen below its 50-day line ahead of earnings.
The Innovator IBD 50 ETF fell 2.5%, weighed down by solar stock Enphase Energy and security stock Axon Enterprise.
Follow Michael Molinski on Twitter @IMmolinski
