U.S. stock indices traded lower on Monday, in line with global investor sentiment, kicking off the holiday-shortened trading week on a sour note amid growing fears that China could reinstate its strict zero-COVID policy.
COVID cases continue to rise in China, which re-introduced curbs in Shijiazhuang and confirmed three deaths in Beijing, the first such announcements in six months. The dollar (DXY) is 0.83% higher on prospects of a China slowdown.
“This COVID wave is troubling as it nears some of the more populous districts. It seems the zero-COVID policy is not going away any time soon and that will definitely weigh on global growth,” said Edward Moya, senior market analyst, OANDA.
Adding to negative sentiment is the increased likelihood of a rail strike after a major railroad labor union voted down a tentative deal with rail management. A strike could cost the economy $2B per day.
Of the 11 S&P 500 sectors, six are trading in the red. Energy stocks led losses, dragged by falling oil prices as Saudi Arabia and other producers are reportedly mulling a production increase.
Deeply “overbought, equities face a crucial test at significant resistance and/or lower highs,” Wolfe Research said. “Our sense is that this is where recent momentum should begin to reverse but the following weeks will be telling to say the least.”
“The recent volatility in DXY and U.S. Treasuries is rare,” Citi said. “Historically, the U.S. dollar only peaks when global growth accelerates relative to US growth, which is not yet visible. We see nothing to change this trend.”
On the economic data front, the Chicago Fed National Activity Index dip in Oct. turned negative again.
According to the New York Fed’s Survey of Consumer Expectations Credit Access, U.S. consumers are less likely to apply for auto loans or mortgages within the next 12 months.
Among active stocks, Disney has jumped on the return of Bob Iger to the helm.