U.S. equities slid Monday ahead of a heavy week of market catalysts.
The S&P 500 (^GSPC) fell 2.08%, or 54.01 points, as of market close, with the real estate sector leading declines after economic data showed homebuilder sentiment fell to the lowest level in more than 3 years in December. The S&P 500 closed at 2,545.94 points, its lowest level since October 2017.
The Dow (^DJI) fell 2.11%, or 507.53 points, to 23,592.98 points, or the index’s second lowest close of 2018. The Nasdaq (^IXIC) declined 2.27%, or 156.93 points, to 6,753.73, its lowest close for the year-to-date.
The Russell 2000 (^RUT) small-cap index entered a bear market, closing lower by more than 20% from its August high of 1,740.75 points. The index fell 1,375.9 points at the end of Monday’s session.
Equities took a beating last week and are showing few signs of a turnaround to make up current losses for the year. The S&P 500 was down about 4.8% for the year as of market close Monday.
The Federal Reserve’s final policy meeting of 2018 on Tuesday and Wednesday in Washington, D.C., will be central to this week’s events as investors seek direction about the path forward for future rate hikes. Consensus expectations are for policymakers to announce a fourth rate hike this year. However, recent economic data has helped squander concerns of an overheating labor market and inflation. These factors, coupled with concerns of slowing global growth, have led some economists to expect a more dovish Fed going forward. Many Federal Reserve officials have reiterated that they will rely on data to determine the path forward, suggesting flexibility in their monetary decisions based on evolving market conditions.
President Donald Trump continued his pressure campaign against the Federal Reserve in a tweet on Monday, saying that “a very strong dollar and virtually no inflation” in the U.S. should signal to the Fed not to raise interest rates. The U.S. Dollar index has risen 5.8% so far this year, while the core personal consumption expenditure price index – the Fed’s preferred inflation gauge – is below the Fed’s inflation target of 2% as of October’s reading.
It is incredible that with a very strong dollar and virtually no inflation, the outside world blowing up around us, Paris is burning and China way down, the Fed is even considering yet another interest rate hike. Take the Victory!
— Donald J. Trump (@realDonaldTrump) December 17, 2018
Washington is just five days away from a partial government shutdown, with funding set to expire for several major federal agencies at the end of the week. Lawmakers have struggled to come to an agreement on spending bills in the midst of a standoff over Trump’s proposed border wall. Trump has been pushing for $5 billion in funding for the wall, but Democrats are not willing to provide more than $1 billion. If the shutdown is realized, it will mark the third federal funding gap in 2018. While a lengthy federal shutdown could eventually spill over into debt ceiling concerns, funding gaps have historically otherwise caused few major ripples in the stock market.
STOCKS: Malaysia files criminal charges against Goldman Sachs over 1MDB scandal, Google makes a billion-dollar investment in NYC
Malaysia on Monday filed its first criminal charges against Goldman Sachs (GS) and multiple former employees over allegedly facilitating the stealing of $2.7 billion in government-backed bonds issued by 1Malaysia Development Berhad (1MBD) that raised $6.5 billion. The prosecutors are seeking fines from Goldman Sachs and the accused individuals in excess of $3.3 billion, comprising the allegedly misappropriated amount plus $600 million in fees Goldman received for the deals. The bank said the charges are “misdirected” and that it intends to “vigorously defend them.” Shares of Goldman Sachs fell 2.71% to $168.09 each as of 4:08 p.m. ET after hitting a fresh 52-week low of $168.05 per share earlier in the session.
Google (GOOG, GOOGL) said it will invest $1 billion in a new, 1.7 million square-foot campus in New York City, Alphabet’s CFO Ruth Porat said in a blog post Monday. Google’s current New York City office houses more than 7,000 employees, and the new campus has the potential to more than double the company’s NYC headcount over the next decade. Google announced earlier this year that it had purchased the shopping and office complex Chelsea Market for $2.4 billion. Shares of Alphabet (GOOG), Google’s parent company, fell 2.45% to $1,016.53 each as of market close.
Health-care stocks came under pressure after a federal judge in Texas ruled the Affordable Care Act unconstitutional on Friday. The judge said that the law must be struck down because Congress in 2017 repealed a tax penalty for not buying health insurance, which had been the basis for the Supreme Court’s 2012 ruling declaring the law constitutional. Companies with exposure to Medicaid and Obamacare public exchanges tumbled Monday. Centene Corporation (CNC) and Molina Healthcare (MOH), which JP Morgan analysts said each carry more than 40% EPS exposure to ACA, fell 4.8% and 8.76%, respectively, as of market close.
ECONOMY: Empire State manufacturing index falls to 19-month low
The Empire State manufacturing index fell 12.3 points in December to 10.9, the lowest reading since May 2017, the New York Fed said in a statement Monday. Consensus expectations were for a headline reading of 20, according to Bloomberg. The results point to business activity in New York state growing at a slower pace than in recent months. The prices paid index fell to 39.7 for the month, suggesting a deceleration in input price increases. Firms were somewhat less optimistic about the six-month outlook than they were last month, with the index for future business conditions falling three points to 30.6. However, the index for the number of employees jumped 12 points to 26.1, “indicating very strong growth in employment levels,” the New York Fed said.
“On the face of it, this drop in the Empire State index appears to point to hefty decline in the national ISM manufacturing index, to perhaps about 56, from 59.3 in November,” Ian Shepherdson, chief economist for Pantheon Macroeconomics, said in a note. “But the subindexes in the Empire State survey were much less bad than the headline, with a very surprising 14-point jump in the employment index largely offsetting declines in orders, shipments and inventories.”
The National Association of Home Builders index tracking homebuilder sentiment fell in December to the lowest level since May 2015, based on the NAHB’s latest report. The index declined 4 points in December to 56, while consensus estimates had called for a headline reading of 60 for the month. Readings above 50, however, are considered positive in terms of sentiment. Of the index’s three components, current sales declined 6 points to 61, sales expectations for the next 6 months fell 4 points to 61 and buyer traffic decreased 2 points to 43.
“We are hearing from builders that consumer demand exists, but that customers are hesitating to make a purchase because of rising home costs,” the NAHB said.
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Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck
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