11.9.15 12:00pm EST
U.S. equities traded sharply lower Monday as investors weighed a possible Federal Reserve rate hike in December.
“It’s a pretty light week [in terms of data],” said Randy Frederick, managing director of trading and derivatives at Charles Schwab. “Aside from that, it’s going to be a continuation of this conversation about a December rate hike.”
The odds of the Fed raising rates for the first time in about a decade rose dramatically after the October nonfarm payrolls report — released Friday — showed the U.S. economy added 271,000 jobs.
According to the CME Group, the probability of a December rate hike rose from about 58 percent to about 70 percent.
U.S. stocks opened lower and soon proceeded to extend losses, with the Dow Jones industrial average falling over 200 points in late-morning trading. The blue chips index also fell back into negative territory for the year as IBM contributed most of the losses.
The S&P 500 dropped over 1 percent in late-morning trading as consumer discretionary fell nearly 2 percent.
“The market giving back here is a reflection of weak growth,” said Nick Riach, CEO of The Earnings Scout.
Overnight, China said October exports fell 6.9 percent from a year ago, while imports dropped 18.8 percent, both missing expectations.
The major indexes posted a six-week winning streak on Friday, gaining at least 1 percent.
“We’re coming off a very good week and the narrative has certainly changed in terms of monetary policy,” said Art Hogan, chief market strategist at Wunderlich Securities. “We’ve been too low for too long, and I think the path toward normalization starts in December.”
“In short, this is a perfectly normal/healthy pullback,” said Adam Sarhan, CEO of Adam Sarhan Capital. “We were long overdue.”
“The key going forward is going to be analyzing the pullback.”
The jobs report also sent U.S. Treasury yields and the dollar surging.
“The market is going to focus on a number of factors [including] the narrowing of the yield curve, which suggests the Fed is gearing up for a rate hike,” said Peter Cardillo, chief market economist at Rockwell Global Capital.
Benchmark 10-year yields held at 2.34 percent while two-year yields traded at 0.88 percent.
The dollar gained over 1 percent against a basket of currencies on the jobs report but traded near the flatline Monday.
“Parity with the euro is on sight,” Cardillo said, adding that it will not be a problem for the market.
“Everyone should keep an eye on the [dollar index],” Raich said. “If that keeps rising, you know what it will do to corporate earnings.”
There are no major economic data points due Monday, but Friday will feature October retail sales.
Hogan said it would be the upcoming data’s jobs to dissuade the central bank from raising rates.
However, “the pivotal decision will be in the November jobs report, which we won’t get for another four weeks,” Frederick said.
Investors also kept an eye in oil, after OPEC said it expected global demand to remain strong next year.
“We’re back at [about] $45 on WTI; that’s constructive,” Hogan said. “If you look at the correlation between oil and S&P 500, it’s been very tight over the past three months.”
U.S. oil slipped 30 cents, or about 0.6 percent, to $43.99 per barrel.
European equities traded lower on weak Chinese export data.
In Asia, equities in China and Japan rose their highest levels in over two months.
DuPont named Edward Breen as its permanent chairman and chief executive officer.
L Brands was downgraded to “neutral” from “overweight” at JPMorgan Chase, based in part on unfavorable apparel industry trends.
The Dow Jones industrial average traded down 230 points, or 1.29 percent, at 17,678, led lower by Caterpillar and DuPont the only advancer.
The S&P 500 traded 29 points lower, or 1.38 percent, at 2,070, with consumer discretionary leading all sectors lower
The Nasdaq traded down 76 points, or 1.48 percent, at 5,070.
Decliners led advancers 5 to 1 at the New York Stock Exchange, with an exchange volume of 326 million and a composite volume of 1.463 billion as of 11:57 a.m. ET.
The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, traded near 16.
Gold futures traded $1.10 higher at $1,088.80 an ounce.
On tap this week:
Noon: Boston Fed President Eric Rosengren
6 a.m.: NFIB
8:30 a.m.: Import Prices
10 a.m.: Wholesale Trade
2:30 p.m.: Chicago Fed President Charles Evans
Earnings: SABMiller, Siemens, Advance Auto Parts, Burberry, Kohl’s,Viacom, Energizer, Cisco Systems, Petrobras, Applied Materials,Nordstrom, Blue Buffalo, El Pollo Loco, Party City, Planet Fitness,Sunrun
8:30 a.m.: Jobless Claims
9:05 a.m.: St. Louis Fed President James Bullard
9:30 a.m.: Fed Chair Janet Yellen delivers welcoming remarks at the Federal Reserve’s Conference
9:45 a.m.: Richmond Fed President Jeffrey Lacker
10 a.m.: JOLTS
10:15 a.m.: Chicago Fed President Charles Evans
11:45 a.m.: New York Fed President Bill Dudley
2 p.m.: Federal Budget
6 p.m.: Federal Reserve Vice Chairman Stanley Fischer
8:30 a.m.: Retail Sales; Retail Sales ex-autos; PPI; PPI ex-food & energy
10 a.m.: Consumer Sentiment; Business Inventories
12:30 p.m.: Cleveland Fed President Loretta Mester