US equities end lower, record consecutive losses ahead of Fed’s final 2021 policy update

What drove the markets?

Further evidence of rising inflation helped spark another wave of sell-offs on Wall Street, with all three major stock indices falling after the US government released data showing wholesale prices rising again.

The producer price index rose 0.8% in November, above the 0.5% economists predicted by The Wall Street Journal. That brought wholesale prices to 9.6% last year, from a 12-month pace of 8.8% in the previous month, the highest level in about four decades.

The PPI report is another “reminder to keep a close eye on inflationary pressures,” Larry Adam, chief investment officer at Raymond James, said in a telephone interview Tuesday. “The market is laser-focused” on the outcome of Wednesday’s Fed update, he said, “with a little apprehension” about the path the central bank might take to fight inflation.

Investors expect Fed policymakers to announce a faster rate of tapering off bond purchases due to higher inflation. Particular attention will be paid to the Fed’s most recent economic projections and its interest rate expectations, which are captured in the so-called dot plot.

“Front-end interest rates are pricing just under three rate hikes in 2022 — seemingly reflecting expectations that asset-buying decelerations will accelerate and the Fed’s ‘dots’ will rise further in Wednesday’s meeting,” said one team of Citi strategists led by Andrew Hollenhorst.

However, stock prices at all-time highs and long-term real interest rates near historic lows suggest that the market continues to price a relatively favorable scenario in which inflation returns to target without significantly more restrictive monetary policy, the analysts said in a note. . to customers.

To see: 5 things to watch out for when the Federal Reserve announces its policy decision on Wednesday

Raymond James CIO Adam told MarketWatch that “the market could absorb some rate hikes” in 2022 and that he expects the S&P 500 to rise to 5,050 next year. Adam said he prefers cyclical betting in areas such as consumer discretionary, financials, industrials and energy, and he also likes “megatech” companies that are diversified and have strong profits.

Government bond yields rose slightly after the release of the PPI data, boosting financial stocks while weighing on technology and other growth-oriented sectors.

“Mixed messages continue to prevail as the year draws to a close,” said Lindsey Bell, chief money and markets strategist at Ally Invest. “Hotter-than-expected PPI has upset the market, especially technology stocks, this morning. Still, bond yields don’t seem concerned about inflation persisting as the 10-year is 20 basis points below pre-Thanksgiving levels.”

However, the yield curve, the difference between short-term and longer-term government bonds, was narrowing, often indicating that investors are betting on impending economic weakness or even a recession.

Read: Fund managers rush to cash ahead of Fed decision

The “Santa Clause rally” expected by the market will depend on the Fed’s next moves, Robert Schein, chief investment officer of Blanke Schein Wealth Management, said in an interview Tuesday. “Markets grapple with Fed policy uncertainty.”

Investors may also want to see the Fed’s views on the rapidly spreading omicron variant of the coronavirus that causes COVID-19. Facing increasing infections, California became the last state to re-impose indoor mask mandates, which come into effect Wednesday. A study released Tuesday by Discovery, South Africa’s largest health insurer, showed that two injections of the Pfizer-BioNTech vaccine provide 70% protection against hospitalization.

Which companies were central?

• Shares of Terminix Global Holdings Inc.
  tmx,
  +18.02%
  jumped 18% after agreeing to be bought by rival pest control group Rentokil Initial PLC
  RTO,
  -12.30%
  in a cash-and-stock deal worth $6.7 billion.

• Shares of Neogen Corp.
  NEOG,
  +8.20%
  rose 8.2% after the food safety company confirmed a report from The Wall Street Journal that it combines with a similar unit of 3M Co. MMM, -1.42% in a $9.3 billion enterprise value deal. 3M shares rose 0.1%.

• Shares of Tesla Inc.
  TSLA,
  -0.82%
  fell 0.8%, after Chief Executive Officer Elon Musk sold more shares.

How did other assets trade?

• The return on the 10-year Treasury TMUBMUSD10Y,
  1.446%
  rose 1.4 basis points to 1.437%. Treasury yields and prices move in opposite directions.

• The ICE US Dollar Index DXY,
  +0.25%,
  a measure of the currency against half a dozen other monetary units, rose 0.3%.

• In oil futures, West Texas Intermediate crude CL00,
  -1.43%
  for January delivery CLF22,
  -1.43%
  fell 0.8% to $70.73 a barrel.

• gold futures GC00,
  -0.94%
  for February delivery GCG22,
  -0.94%
  fell 0.9% to settle at $1,772.30 an ounce.

• The Stoxx Europe 600 Index SXXP,
  -0.84%
  fell 0.8%, while London’s FTSE 100 Index UKX,
  -0.18%
  0.2% lost.

• In Asia, the Shanghai Composite Index SHCOMP,
  -0.53%
  fell 0.5%, while the Hang Seng Index HSI,
  -1.33%
  fell 1.3% in Hong Kong. China’s CSI 300 000300,
  -0.67%
  fell 0.7%. Japanese Nikkei 225 Index NIK,
  -0.73%
  fell 0.7%.

—Barbara Kollmeyer contributed to this article.