US equities closed lower on the first day of the trading week after reports from China rattled the global markets. Dow ended the day almost 500 points lower (1.45%), while S&P 500 and Nasdaq Composite were down by more than 1.50 % when the day’s session ended. “The U.S. equities fell as widespread protests across China against the country’s zero-Covid policy sparked worries for the outlook of global growth,” says Mitul Shah, Head of Research at Reliance Securities.
The investor’s sentiments also dipped post the remarks by Federal Reserve officials stressing that more interest rate hikes are coming. President of the Fed Bank of St. Louis James Bullard suggested that markets may be underestimating the likelihood of higher rates, while John Williams of the Federal Reserve Bank of New York cautioned that policymakers still have work to do to rein in inflation. According to Fed Vice Chair Lael Brainard, a series of supply shocks has kept inflation risks high.
Market sentiments on Tuesday look to be different as the US equity futures are in green with Dow, S&P 500, and Nasdaq Composite showing decent gains. Hang Seng index was up by over 900 points (5%) while the Shanghai index closed by over 2.31% on Tuesday.
In Hong Kong and on the mainland, shares rose as some investors believed the protests might hasten a move away from Covid-Zero policies. According to reports, Chinese government health officials will hold a briefing on the implementation of virus prevention and control measures at 3 p.m.
Some analysts and investors are of the view that there could be a year-end rally in 2022 that could recoup some of the losses incurred by the indices. However, many are of the view that the stock market has not priced in a recession yet and volatility may persist. Some economists warn of a recessionary environment similar to 1969-1970 in the US next year.
There will be a tonne of economic data this week that will help clarify the Fed’s next move, as well as Fed Chair Powell’s much-anticipated appearance at the Brookings Institute on Wednesday. Also, important for the markets will be the latest job data. “The market is awaiting the Labor Department’s November jobs data to be released on Friday, which will likely influence heavily into the Fed’s December interest-rate decision,” adds Shah.