Stocks fall ahead of more economic data

U.S. stocks sunk Monday ahead of another wave of economic data out this week.

The S&P 500 (^GSPC) moved lower by 0.9% in early morning trading, while the Dow Jones Industrial Average (^DJI) down by 0.8%, or 270 points. The technology-heavy Nasdaq Composite (^IXIC) fell by 0.9%.

Stocks finished mixed on Friday as investors digested hotter-than-expected jobs data. The strong job gains and robust wage growth are the opposite of what the Federal Reserve would like to see in its battle against inflation. Friday’s figures showed demand for workers remains out of balance with supply, signaling to Fed policymakers to either take rates higher than previously anticipated or them higher for longer in restrictive territory.

The narrative from U.S. central bank officials, now in their pre-meeting blackout period, has suggested they would downshift to a half-point hike at their Dec. 13-14 meeting, after four consecutive 75 basis-point increases. Investors are now wondering how much longer will the central bank continue to hold its tightening campaign, how high the federal funds rate will end up, and how long it will stay there.

“It's fascinating that at the moment the market is focusing squarely on the very strong likelihood that we'll ratchet down to 'only' a 50bps hike next week and extrapolating that level of dovishness rather than focus on any risks that the terminal rate could end up being nearer say 6% than 5%,” Jim Reid and colleagues at Deutsche Bank wrote in an early morning note Monday.

Leading the economic calendar for the week are new readings on the producer price index (PPI) — which measures prices paid for goods and services before they reach consumers and consumer sentiment. On Monday, the ISM Manufacturing Index expanded faster in November 56.5 compared to estimates of 53.5, which is above October’s reading of 54.4. In a separate report, the Purchasing Managers’ Index (PMI) is 46.2 in November, down from the October reading of 47.8. New business activity fell at the sharpest rate since May 2020.