The stock market closed lower Monday as all eyes were on the Fed's meeting this week. Chip companies Advanced Micro Devices, Intel and ON Semiconductor led declines, as well as Brazilian oil company Petrobras.
The Nasdaq composite closed down 1%, and the S&P 500 declined 0.8%. The Dow Jones Industrial Average traded down 0.4%. The small-cap Russell 2000 was unchanged from Friday.
Volume rose on the Nasdaq but fell on the NYSE vs. the same time on Friday, early data showed.
Meanwhile, the yield on the benchmark 10-year Treasury note rose 5 basis points to 4.07%.
U.S. crude oil fell 1.9% to $86.20 per barrel.
Investors Await Fed's Rate-Hike Meeting This Week
The Fed's announcement is scheduled for Wednesday at 2 p.m. ET, with Chairmain Jerome Powell following with a press conference at 2:30 ET. As of Monday afternoon, 88% of traders expected the Fed to raise rates by 75 basis points, while 12% looked for a 50-basis-point hike, according to the CME FedWatch Tool.
Investors will be looking to get any insights on how big the next rate hikes will be in what remains of 2022 and 2023. The Fed is aiming to fight high inflation without risking sending the economy into a recession.
"With a series of important economic indicators suggesting the economy is declining and inflation is finally decelerating, albeit very slowly, markets are beginning to factor in that the Fed may soon transition to a less aggressive stance in early 2023," LPL Financial wrote in a memo to investors on Monday.
"With the question-and-answer segment, Fed Chairman Jerome Powell will need to convince traders and investors alike that the Fed is still resolutely determined to curtail inflation, but that it can be accomplished with a steady dose of lower rates," said Quincy Krosby, Chief Global Strategist for LPL Financial.
The stock market is also keeping a close eye on inflation numbers and the employment situation, with the ADP Employment report due out Wednesday at 8:15 a.m. ET.
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All 11 S&P sectors either traded down or up slightly, led by the Communications Select Sector SPDR ETF, down 1.6%, and the Technology Sector SPDR ETF, off 1.2%.
Chip Stocks Fall On News, Earnings
ON Semiconductor sank 9% despite reporting a beat on Q3 EPS and sales but offered mixed guidance for the current quarter. For the current quarter, Onsemi forecast adjusted earnings of $1.26 a share on sales of $2.075 billion. That's based on the midpoint of its outlook. Wall Street had been modeling earnings of $1.25 a share on sales of $2.09 billion in the fourth quarter.
ON stock is ranked No. 1 in the Electronics-Semiconductor Manufacturing industry group. The group is ranked a low 141st out of the 197 IBD groups. ON shares dropped below their 50-day moving average but are still within a base and finding support at their 200-day line.
Advanced Micro Devices fell 3.1% after Northland Capital Markets downgraded the stock to market perform from outperform, and cut its price target to 60. The chipmaker reports Q3 earnings on Tuesday after the closing bell, with analysts looking for a profit of 72 cents per share on $5.69 billion in revenue.
Intel also fell in sympathy with the chip group, down 2.2%. Intel late Thursday beat lowered expectations for the third quarter but slashed its outlook for the fourth quarter.
Other technology stocks also fell. Blue-chip stocks Microsoft and Apple slid 1.6% and 1.5%, respectively.
Brazil stocks dropped early Monday but then recovered after the country's leftist former president, Luiz Inacio Lula da Silva, won Sunday's runoff presidential election, narrowly defeating right-wing President Jair Bolsonaro. The iShares MSCI Brazil ETF gained 4% Monday. Lula was president of Brazil from 2003 to 2010, overseeing a period when Brazil's middle class and economy prospered.
State-owned oil giant Petrobras sank 4.7% amid concerns that Lula will now redirect the company's capital toward social needs and away from profits and shareholder returns. Bolsonaro had threatened to take the company private.
On Friday, shares of PBR closed at 13.45. Petrobras stock is up 75% since the start of the year, and had just broken out from a late-stage cup base. PBR shares reversed lower last week, undercutting the base's 14.85 buy point by more than 8% and triggering an automatic sell rule.
Stock Market Today: Howmet Tumbles, But UNH, PSTG Rise
Howmet Aerospace tumbled 1.7% after reporting a small miss on Q3 sales. It also lowered Q4 sales guidance and full-year 2022 EPS guidance.
UnitedHealth Group rose 0.8% in light volume, breaking out of a cup-with-handle base with a 553.23 buy point.
Pure Storage rose 1.2% after Morgan Stanley upgraded the stock to overweight and raised its price target to 37. Shares are in a choppy base with a buy point of 31.62. The relative strength line hit a new high. The company has a best-possible 99 EPS Rating.
Caterpillar dipped 1.1% after UBS downgraded the equipment giant to neutral and raised the price target to 230. CAT stock gapped up 7.7% Thursday after beating Q3 EPS and sales. Shares are building the right side of a base. The relative strength line hit a new high, as indicated by the blue dot on the MarketSmith chart.
The Innovator IBD 50 ETF gained 0.6%. Earthstone Energy and medical technology company Axonics led gainers. On the downside, Onsemi and PBF Energy dragged the index.
Devon Energy, which has delivered triple-digit revenue growth in four out of the past five quarters, reports earnings Tuesday after the close. The stock has been hitting new highs in light volume, a weakness.
Chesapeake Energy, Comstock Resources and Magnolia Oil & Gas also report Tuesday.
Growth investors also await results this week from Arista Networks (after today's close), Lantheus and Paylocity.
Follow Michael Molinski on Twitter @IMmolinski
