Market Snapshot: U.S. stocks finish mostly lower as S&P 500 books longest losing streak in nearly two months

What’s driving markets

A four-day losing streak, during which the S&P 500 index has lost 3.4%, showed little sign of being snapped Wednesday as investors continued to assess the potential economic damage inflicted by high inflation and the Federal Reserve’s campaign to damp it by raising interest rates. U.S. stock indexes extended losses in midday trade despite regaining some ground in the morning session.

MarketWatch Live: S&P 500 on pace for 5-day losing streak as stocks turn negative heading into midday

“The recent run of macro data points in the U.S. continues to underscore relatively solid economic trends. And combined with the recent easing in financial conditions, it may trigger a need for the Fed to push back in December. Put another way, the dove camp is feeling some pain,” said Stephen Innes, managing partner at SPI Asset Management.

Jim Reid, strategist at Deutsche Bank , noted that the S&P 500 had now lost ground in the last seven out of eight sessions. “In fact, the latest moves for the S&P mean it’s now unwound the entirety of the rally following Fed Chair Powell’s [supposedly dovish] speech last week, which makes sense on one level given he didn’t actually say anything particularly new.”

The S&P 500 has fallen 17.2% in 2022 as the Federal Reserve has driven borrowing costs sharply higher in an effort to tame inflation that has been running at the fastest pace in 40 years.

See: BNP Paribas studied 100 years of market crashes — here’s what it says is coming next

The Fed’s monetary tightening alongside stubborn inflation may deliver a marked economic slowdown, senior bankers such as JPMorgan’s Jamie Dimon and Goldman Sachs’s David Solomon warned this week.

“Fears are growing that economies are in for a rough time ahead as feverish inflation and the bitter interest rate medicine being used to bring it down take effect,” said Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown.

“Worries deepened amid warnings from U.S. banking and media sectors that navigating through the storm would not be easy, while the latest data has shown China’s trade has been sideswiped by a drop in global demand and zero-COVID policies. Despite today’s easing of restrictions it’s clear China’s COVID nightmare is not at an end,” Streeter added.

China on Wednesday announced a series of measures rolling back some of its most draconian anti-COVID-19 restrictions. People who test positive for the virus will be able to isolate at home rather than in overcrowded and unsanitary field hospitals, and schools where there have been no outbreaks must return to in-class teaching, according to the National Health Commission.

The Hang Seng index
HSI,
-3.22%
in Hong Kong fell 3.2%, while the CSI 300
000300,
-0.25%
dropped 0.2%, suggesting investors had already discounted Beijing’s more relaxed COVID stance.

See: A speedy reversal of China COVID-19 restrictions could cause 1 million winter deaths: report

However, long time bull Tom Lee, head of research at Fundstrat, reckons equities will benefit in coming weeks as investors start to get greater clarity on when the Fed may stop tightening policy.

“We don’t think the end of the inflation war in 2022 is the Fed cutting rates. It is when Fed and markets see sufficient progress in inflation to remove the upside risks to higher rates. We think this could happen as early as the November CPI report. This will be released on 12/13,” Lee wrote in a note.

“And if November CPI is soft, we think this will support a strong year-end rally. Admittedly, a 10% move between now and [year end] seems a stretch given the S&P 500 is around 4,000 but… the broader point is we see stocks having positive skew given the cautious positioning of investors and the possibility of very favorable incoming inflation reports,” Lee added.

On the U.S. economic front, nonfarm productivity, which measures hourly output change per worker, rose at a 0.8% annualized rate last quarter, the Labor Department said on Wednesday. Unit labor costs, the price of labor per single unit of output, climbed by a smaller 2.4% annual pace in the third quarter, compared to the preliminary 3.5% increase.

What companies are in focus

Carvana Co. 
CVNA,
-28.61%
shares slumped 33% after creditors led by Apollo Global Management Inc. and Pacific Investment Management Co. inked an agreement to team up in credit talks with the used car dealer in a move to avoid the conflicts that have arisen in other debt restructurings.

Campbell Soup Co. 
CPB,
+5.38%
shares were up 3.7% on Wednesday after the company topped expectations with its latest results and increased its full-year forecast. 

Toll Brothers Inc. 
TOL,
+6.23%
rose 4.1% after reporting higher fiscal fourth-quarter revenue as it delivered more homes in the recent period.

Lowe’s
LOW,
+3.08%
shares gained 2.1% after the company announced a new $15 billion share repurchase program and the home improvement retailer reaffirmed its full-year forecast.

Chinese electric vehicle stocks NIO Inc.
NIO,
-5.40%
and XPeng Inc.
XPEV,
-8.34%
dropped over 6.2% and 8.2%, respectively, despite news of the country easing some COVID-19 restrictions on production and travel.