Stocks slide, dollar steady as market gauges Fed’s rate policy

Stocks fell Monday on fears that the Federal Reserve may continue tightening until it tips the economy into a recession.

The Dow Jones Industrial Average fell 482.78 points, or 1.4%, to finish at 33,947.10. The S&P 500 slumped 1.79% to settle at 3,998.84. The Nasdaq Composite slid 1.93% to end the session at 11,239.94.

Tesla shares shed about 6.4% on reports of an output cut at its Shanghai factory, while tech stocks like Amazon and Netflix slid 3.3% and 2.4%, respectively, on growth concerns. Salesforce tumbled nearly 7.4% as it announced the departure of Slack’s CEO.

Macao-linked casino stocks gained on hopes of easing Covid-19 restrictions, while VF Corp. shares slid 11.2% after the apparel company cut its outlook.

A hotter-than-expected reading of November ISM Services further fueled concerns that the Fed will continue hiking after the index topped Dow Jones’ estimates and increased from October.

Bond yields pushed higher as equities fell, with the yield on the benchmark 10-year Treasury

last trading up nearly 9 basis points at 3.588% late Monday.

“Clearly, equity markets want to move higher, but that’s very dependent on inflation getting under control,” said Peter Essele, senior vice president of investment management and research at Commonwealth Financial Network. “And so, when you have above expectation prints on any econ number that comes out, that tends to fuel inflationary concerns, which sends rates higher.”

Following a speech last week by Fed Chairman Jerome Powell, markets largely expect the central bank will approve a 0.5 percentage point interest rate increase. That would mark a step down from a series of four straight 0.75 percentage point hikes.

At the same time, Powell also said the “terminal rate,” or point at which the Fed stops raising, likely “will need to be somewhat higher” than indicated at the September meeting. That could mean a fed funds rate that ends up in excess of 5%, from its current target range of 3.75%-4%.

Though investor concerns are mounting over Costco’s ability to match prior sales periods, UBS says the retailer is poised to perform well in the first quarter.

“Altogether, we think COST has every right to win this holiday season & beyond,” said UBS analyst Michael Lasser in a note to clients.

He said Costco has “solid growth prospects to support premium valuation” and sales should remain solid in the first quarter despite worries over sliding monthly sales. November sales data showed a continued sequential slowdown, with September’s 8.6% growth followed October’s 6.7% and November’s 5.3%.

However, the wholesaler said sales improved throughout November, leading Lasser to believe the company could be a winner among late holiday shoppers. He also said sales could stabilize in the first quarter as some headwinds recede. Lasser estimates the first quarter comparable sales figure will come out to a gain of 6.9%.

But he said cause for concern is not totally unwarranted. Lasser expects to membership grow by 4.3% to $987 million in the quarter, which would be slightly under expectations of $1.011 billion.

While reiterating the stock as a buy, he lowered the price target to $580 from $595, which still presents an upside of 14.7% from where the stock closed Friday. Lasser said the new price reflected a smaller multiple, which he said was justified given the potential impacts to retail as a whole in the event of further consumer pullback.