Stock prices fell on Monday as doubts grew over the prospects of a U.S. interest rate cut and the key monthly jobs report loomed on the horizon.
The S&P 500 (^GSPC) lost 0.7%, while the Dow Jones Industrial Average (^DJI) lost 0.3%, or about 120 points. The tech-heavy Nasdaq Composite (^IXIC) fell 1.1%, leading the decline.
Stocks rallied last month, posting five straight weekly gains as investors clung to the idea that the Federal Reserve would begin cutting interest rates early next year. Those expectations have also pushed Treasury yields lower in recent days, even after Fed Chairman Jerome Powell pushed back against talk of an end to interest rate hikes.
Both stocks and bonds are currently in retreat on Wall Street as more analysts warn that the rally in these assets is overblown. The 10-year Treasury yield (^TNX) rose 6 basis points to about 4.28%.
The November jobs report, due out on Friday, could also take the wind out of the rally, depending on whether the data contradicts the belief that the Fed is done raising interest rates. The slowdown in the labor market is a key factor in policymakers’ decision-making.
Read more: What the Fed’s pause on rate hikes means for bank accounts, CDs, loans and credit cards
Elsewhere in markets, these Fed reversal hopes helped push Bitcoin (BTC-USD) prices above $41,000, a level last seen before the 2022 crypto crisis. Other digital currencies also gained on expectations that the SEC will greenlight spot Bitcoin ETFs in the US in January.
In individual stocks, shares of Hawaiian (HA) rose about 190% after Alaska Air (ALK) said it would pay nearly four times Friday’s closing price to buy the troubled fellow airline. Alaska shares fell about 15%.
J2024 could be a year of “dramatic movement” in the S&P 500
As debate rages over when the Federal Reserve will cut interest rates, certainty among investors appears to have increased that rate cuts will begin in the first half of 2024. For investors, this could mean big swings in the market as the Fed’s first will. This is likely due to inflation continuing its downward trend or some economic growth turning negative due to the Fed’s tightening measures.
That’s prompting Keith Lerner, Truist’s co-CIO, to warn his clients that there’s a good chance the benchmark index won’t land safely between their “baseline total return” estimates for a 5% to 10% return in the S&P 500.
“History shows that the likelihood of a much more dramatic move is heightened, and this is another reason for investors to be prepared for a shift later this year,” Lerner wrote in the company’s 2024 Investment Outlook released Monday.
Truist’s analysis shows that since 1989, the S&P 500 has risen by more than 10% four times and fallen by less than 10% twice in the year after the Fed’s first rate cut.
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Netflix on password sharing: “It was good to take it slow”
Netflix (NFLX) said its crackdown on password sharing will continue to be slow — but slow and steady is exactly what the company is aiming for.
“We are completely comfortable with the pace,” co-CEO Ted Sarandos said at a UBS media conference on Monday, explaining that the rollout was “intentionally slow” to reflect different country-specific insights.
“How you nuance the language, how you nuance the offer, how you tune it [to be] “We are compliant with the regulatory models locally – it was good to take it slow,” he reiterated. “Basically, we are an A/B testing culture. This gives us a range of A/B tests that we could run worldwide.”
The company rolled out its crackdown on password sharing for US subscribers in May, after first announcing the initiative in October 2022.
Since then, the stock has risen more than 20% – even as many users have expressed concern about the controversial initiative.
Amid the crackdown, the company reported a third-quarter subscriber increase to nearly 9 million, well above expectations of 6.2 million.
The company said the better-than-expected growth was “driven by the introduction of paid sharing, a strong, robust program and the continued expansion of streaming globally.” In the same period last year, the company added just 2.41 million paid users.
Netflix said it expects fourth-quarter net subscriber additions to be “similar” to third-quarter results.
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Uber rises after S&P announcement
Uber shares are on the rise.
The ride-hailing app will be added to the S&P 500, the S&P Dow Jones Indices announced Friday after the closing bell. Shares rose nearly 5% on Monday in response to the news.
“We expect inclusion in the index will help UBER attract a more diverse group of investors, potentially helping to reduce the stock’s volatility,” Jefferies equity analyst John Colantuoni wrote in a research note on Monday.
Uber cleared the final hurdle for inclusion in the benchmark index when it posted positive GAAP net income in last year’s earnings release in November. The stock has now more than doubled since its lows in June 2022 and is on the verge of reaching a new all-time high.
Analysis by Jefferies shows that companies that are added to the S&P 500 typically gain an average of 11.2% between the close before the announcement and the day the stock is actually added to the S&P 500.
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Carvana shares rise as JPM upgrades the stock
Carvana (CVNA) has had a bumpy ride this year, but JPMorgan believes the worst is already ahead for the auto retailer.
“The known unknowns surrounding the CVNA story are, in our view, better appreciated by investors today, and it is possible that CVNA can weather this uncertain macro and used car industry period in a way that supports the downside to near- and medium-term estimates “limited.” “JPMorgan analyst Rajat Gupta wrote in a new research note on Monday.
JPMorgan increased its price target to $40 from $25 while also raising its rating to “Neutral” from “Underweight.”
The stock rose nearly 20% on Monday.
Stocks lose momentum in afternoon trading
Despite November’s robust rally and hopes that the worst of inflation is behind us, investors are weighing the uncertainties ahead of the new year. Strategists’ 2024 forecasts offer varying views on the market outlook, including divided opinions on whether valuations are realistic or exaggerated.
The S&P 500 (^GSPC) lost 0.7%, while the Dow Jones Industrial Average (^DJI) lost 0.3%, or about 100 points. The tech-heavy Nasdaq Composite (^IXIC) fell 1%. Bonds are also on the decline. The 10-year Treasury yield (^TNX) rose 6 basis points to about 4.29%.
Virgin Galactic shares are sinking after Richard Branson signaled no further investment
Virgin Galactic (SPCE) founder Richard Branson said he will no longer invest money in his space company, sending the stock down as much as 15% on Monday, Yahoo Finance’s Ines Ferré reports.
“We no longer have the deepest pockets after the Corona crisis, and Virgin Galactic has a billion dollars or close to a billion dollars,” Branson told the Financial Times. “I believe the company should have sufficient resources to do its own work.”
The billionaire founded Virgin Galactic in 2004 and helped the startup go public through a SPAC merger in 2019.
Last month, the stock shot up nearly 20% in a day after the company said it would cut 18% of its workforce and focus on a new spacecraft that is expected to be more profitable. A higher interest rate environment has pushed capital-intensive space companies like Virgin Galactic to find ways to weather turbulent times.
Virgin Galactic shares have fallen more than 40% so far this year. Shares had gained nearly 50% over the past month before Monday’s decline.
Crypto is having another moment in 2023
Bitcoin (BTC-USD), the dominant cryptocurrency, surpassed $42,000 on Monday, hitting a new annual high and appeared to put behind it recent industry scandals that have weighed heavily on the digital assets.
Investor sentiment has become more optimistic in recent weeks, driving up the value of digital tokens and stocks of crypto companies. Investors are particularly interested in the possibility of regulators approving a crypto exchange-traded fund that would allow investors greater exposure to digital assets without taking on the full risk of owning those assets directly. The Securities and Exchange Commission is expected to comment on the filings next month.
Markus Thielen, head of research at DeFi Research.com, recently told Yahoo Finance Live that ETF approvals could push the price of Bitcoin to nearly $60,000 as investors shift some of their funds into cryptocurrencies. Signals that the Fed has likely completed its tightening campaign and pent-up demand are also driving the increase, Thielen said.
Crypto’s positive turnaround towards the end of the year also underscores what industry leaders are calling a transition to a new chapter for the sector. Last month, the founder of the world’s largest crypto exchange Binance pleaded guilty to federal money laundering charges and resigned as CEO. The Binance pleas came shortly after FTX co-founder Sam Bankman-Fried was sentenced.
Stock trends in morning trading
Here are some of the stocks topping Yahoo Finance’s trending ticker page during morning trading on Monday:
Spotify (SPOT): Spotify shares rose more than 5% on Monday morning after the company announced its third round of layoffs this year. The streaming giant plans to lay off 17% of its workforce, or about 1,500 of its employees. CEO Daniel Ek announced the news in a letter to employees, saying that despite the streamer’s recent efforts to boost margins, economic growth has “slowed dramatically” as higher interest rates erode profits amid increased capital costs.
Hawaiian Holdings (HA): Hawaiian Airlines’ parent company nearly tripled its stock price on Monday after Alaska Air (ALK) agreed to acquire it for $1.9 billion at an offer price of $18 per share.
Coinbase (COIN): The crypto trend continues and the major US platform for buying and selling digital currencies is reaping the benefits. Shares of Coinbase rose nearly 8% on Monday morning, while Bitcoin (BTC-USD) gained 5% to surpass $41,000.
Uber (UBER): Shares of the ride-hailing company rose more than 5% on Monday after confirming that the stock will be added to the S&P 500, the widely followed benchmark index, giving the company even greater exposure as institutional and private investors invest in funds that invest in component stocks that make up the S&P.
Wall Street softens amid Fed uncertainty
Stocks fell at the opening bell on Monday as doubts about the Fed’s interest rate policy weighed on investors’ minds as they anticipated the release of a key monthly jobs report due later this week.
The S&P 500 (^GSPC) lost 0.8%, while the Dow Jones Industrial Average (^DJI) lost 0.4%, or about 150 points. The tech-heavy Nasdaq Composite (^IXIC) fell 1%.
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Spotify commits to another round of layoffs
Spotify (SPOT) plans to lay off 17%, or about 1,500, of its employees – its third round of layoffs this year.
Spotify CEO Daniel Ek announced the news in a letter to employees on Monday. The chief executive said that despite the streamer’s recent efforts to boost margins, economic growth has “slowed dramatically” as higher interest rates erode profits amid increased capital costs.
“I recognize that a reduction of this magnitude will be surprisingly large to many, given the recent positive earnings report and our performance,” Ek said. “We have discussed making smaller reductions in 2024 and 2025.”
But he said that given the gap between the company’s financial goals and operating costs, he decided “that a substantive move to adjust our costs was the best option to achieve our goals.”
Spotify shares rose about 6% in premarket trading Monday following the news.
“The Spotify of tomorrow must be defined by our relentless ingenuity in the way we operate, innovate and address problems,” Ek continued. “This kind of ingenuity goes beyond the basic definition – it’s about preparing for our next phase, where lean is not just an option, but a necessity.”
The company laid off about 600 employees in January and another 200 workers in June.
According to an SEC filing, the company estimates that it will incur charges of approximately 130 million to 145 million euros in the current quarter, consisting primarily of severance payments and the impairment of real estate assets as part of the workforce reductions.
The latest round of job cuts comes after the streaming service turned a profit in the third quarter – its first quarterly profit in over a year following recent price increases and lower-than-expected costs related to staffing and marketing expenses.
Read more here.
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