U.S. stocks end lower, snapping win streak as Dow, S&P 500, Nasdaq retreat from peaks

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MARKET SNAPSHOT

U.S. stock indexes ended lower Tuesday, with the Nasdaq Composite and S&P 500 snapping long win streaks as market benchmarks retreated from record highs.

Investors parsed a report on U.S. wholesale inflation and news that industrial conglomerate General Electric was planning on splitting into three separate companies.

How did stock benchmarks trade?

  • The Dow Jones Industrial Average fell 112.24 points, or 0.3%, to close at 36,319.98.
  • The S&P 500 slid 16.45 points, or 0.4%, to finish at 4,685.25.
  • The Nasdaq Composite Index retreated 95.81 points, or 0.6%, to end at 15,886.54.

Though the advance was modest, the S&P 500 on Monday had scored its eighth straight gain, its longest winning streak since April 2019. The Dow, S&P 500, Nasdaq Composite and Russell 2000 all finished at record highs after the House of Representatives late Friday passed infrastructure spending legislation that is expected to be signed into law by President Joe Biden.

What drove the market?

Investors on Tuesday saw that markets also fall, following a protracted period of buoyancy for the main stock indexes that has been described as a “melt up” by some market bulls and bears alike.

The consumer discretionary, financials, and information technology sectors were under the greatest selling pressure in the S&P 500 index Tuesday, with the downturn in stocks ending an eight-day win streak for the index and an 11-session run-up for the Nasdaq Composite.

U.S. stocks appeared “due for a pause” after signs of “exuberant activity,” said Randy Frederick, managing director of trading and derivatives at Charles Schwab, in a phone interview Tuesday. Market volatility had been rising along with stock prices in recent days, which is unusual, he said.

Tesla shares dropped 12% Tuesday, weighing on the S&P 500 and Nasdaq Composite, after founder Elon Musk over the weekend asked in a Twitter poll if he should sell 10% of his stock. A majority of respondents said he should.  

Meanwhile, the Federal Reserve’s twice-a-year financial stability report, released Monday, said valuation measures are high across most asset classes. The report noted that stock prices relative to earnings forecasts are at the upper end of the ratio’s historical distribution, and the yields on Treasury securities, corporate bonds and leveraged loans are at low levels relative to their history.

Read: ‘Risks of a market bubble are growing,’ warns Morgan Stanley

Even with the retrenchment, the complexion of the market remains bullish.

“As scary as these heights feel, the market continues trading well. We’ve been solidly overbought for weeks, yet buyers keep throwing even more money at these record highs,” said Jani Ziedins, who authors the Cracked Market blog.

Read: ‘It’s a melt-up’: U.S. stocks are on an unusually strong run heading into the holidays

While U.S. stocks have moved higher faster than he expected, Frederick told MarketWatch that he remains “optimistic” about the fourth quarter as companies should continue to produce strong earnings.

Meanwhile, traders will have to consider the possibility of a change in leadership at the Federal Reserve, after Bloomberg News reported that Fed Gov. Lael Brainard interviewed for the role currently held by Jerome Powell. Powell’s still considered likely to be nominated to serve a second term as chairman.

In U.S. economic data, the October producer-price index rose 0.6%, in line with expectations, with the pace of wholesale inflation over the past 12 months flat at 8.6%. That is the highest level since the index was reconfigured in 2009, and likely one of the highest readings since the early 1980s.

“There’s no question that inflation is high,” said Frederick. Companies have passed on some of their higher costs to consumers, while wages also have been increasing, he said.

The PPI index may be “hitting its peak right now,” Luke Tilley, chief economist at Wilmington Trust, told MarketWatch by phone Tuesday. Price pressures should start to “alleviate,” he said, “as we get more employment for production of all goods” and as supply-chain issues ease.

Wage pressures remain a risk for companies, though, because higher labor costs could eat into profits, according to Tilley. While businesses in some cases may see their earnings eroded, he said they will also be evaluating how much of their higher costs may be passed on to consumers and whether they can increase productivity by “making more with less.”

Earlier, the National Federation of Independent Business said its gauge of small-business confidence slipped by 0.8 points to 98.2 last month, its lowest reading since March.

Still, Tilley expects U.S. economic growth will accelerate in the fourth quarter and that company earnings will remain strong, saying Wilmington Trust is overweight U.S. and international equities.

Which companies were in focus?

  • Shares of General Electric Co. rose 2.7% after the industrial conglomerate announced plans to split into three publicly traded companies.
  • AMC Entertainment Holdings Inc. late Monday reported quarterly results that beat expectations across the board. Shares of the popular meme stock fell 11.4%.
  • Shares of Hertz Global Holdings Inc. slid 9.8% after the car-rental company announced overnight that an upsized public offering of shares priced at the top end of the expected range. Hertz emerged from bankruptcy protection in July.
  • PayPal Holdings Inc. shares dropped about 10.5% after the payments company fell short of expectations with its holiday-quarter outlook Monday, while also announcing a new arrangement with Amazon.com Inc. through which Venmo users will be able to use the service as a checkout option on the e-commerce giant’s platform.
  • Shares of Roblox Corp. surged 42% after the social-gaming platform late Monday said its October performance would still top last year’s, despite a three-day outage over the Halloween weekend.

How did other markets fare?

  • The yield on the 10-year Treasury note BX:TMUBMUSD10Y fell 6.5 basis points to 1.431%. Yields and debt prices move in opposite directions.
  • The ICE U.S. Dollar Index, a measure of the currency against a basket of six major rivals, was down 0.1%.
  • Oil futures ended higher, with the U.S. benchmark rising 2.7% to settle at $84.15 a barrel. Gold futures rose nearly 0.2% to settle at $1,830.80 an ounce.
  • The Stoxx Europe 600 closed down 0.2%, while London’s FTSE 100 ended 0.4% lower.
  • The Shanghai Composite and Hong Kong’s Hang Seng Index each rose 0.2%, while Japan’s Nikkei 225 fell 0.8%.

—Steve Goldstein contributed to this report.

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