New York Stock Market Declines Early Amid Moody's Downgrade and Shutdown Concerns

The three major indices of the U.S. New York stock market showed a unified decline in early trading on Monday, the 13th (local time), ahead of the temporary budget deadline, affected by Moody's downgrade of the U.S. credit rating outlook and rising Treasury yields. This week, major economic indicators including the Consumer Price Index (CPI) and the U.S.-China summit are also scheduled.

At around 10:06 a.m. at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average, centered on blue-chip stocks, was trading at around 34,264, down 0.06% from the previous close. The large-cap S&P 500 index was down 0.38% at 4,398, and the tech-heavy Nasdaq index was down 0.62% at 13,712.

Currently, nine sectors in the S&P 500, excluding energy and consumer staples, are all declining. Boeing is up more than 4% from the previous close, buoyed by foreign reports that China may resume purchases of Boeing 737 Max aircraft following the U.S.-China summit and Emirates Airlines' announcement of a $52 billion purchase plan. Tyson Foods rose more than 3% despite quarterly sales falling short of expectations. Plug Power is down about 3% amid bankruptcy concerns. Micron is down more than 2% following news that China's semiconductor company YMTC has filed a patent lawsuit in the U.S. Major tech stocks such as Tesla, Apple, Google Alphabet, and Microsoft are all trading slightly lower.

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Investors who smiled after last week's rally are currently cautious, awaiting major events this week such as the possibility of a U.S. federal government shutdown, key economic data releases including the CPI, and the U.S.-China summit. After the market closed on the 10th, Moody's announced a downgrade of the U.S. sovereign credit rating outlook to 'negative,' heightening sensitivity to Treasury yields and the dollar's movements.

Moody's announcement came as the possibility of a U.S. federal government shutdown approaches. The temporary budget passed by Congress is set to expire on the 17th. If the budget is not passed by then, a shutdown is inevitable. Moody's pointed out, "The risk to the U.S. fiscal soundness has increased, and the country's inherent credit strengths are no longer sufficient to fully offset this."

Accordingly, Treasury yields in the New York bond market are rising again. As of this morning, the 10-year U.S. Treasury yield rose to around 4.68%. The 2-year yield, sensitive to monetary policy, is trading around 5.07%. The dollar index, which shows the value of the dollar against six major currencies, is slightly up at 105.9. Jay Hartfield, CEO of Infrastructure Capital Management, said, "The U.S. budget process has completely collapsed, leading to the downgrade of the credit rating outlook. This is the core issue," noting that it could also affect foreign investors' sentiment.

On the 13th, the CPI, which could influence the Federal Reserve's monetary policy moves, will be released. If the inflation indicator falls short of expectations once again, expectations for the end of tightening will strengthen further, pushing down Treasury yields and accelerating the stock market rally. Wall Street estimates the October CPI to rise 3.3% year-over-year and 0.1% month-over-month, a slowdown compared to the previous month's increases of 3.7% and 0.4%, respectively.

This week, earnings and retail data from retailers such as Home Depot, Target, Walmart, and TJX, which gauge U.S. consumer spending, will also be released. October retail sales, scheduled for release on the 15th, are expected to decline by 0.1%. Until September, retail sales had shown a 0.9% year-over-year increase over about three months, but a sharp decline is anticipated this month. However, this consumption slowdown could strengthen expectations for the Fed's end of tightening, which may be positive for the stock market.

Raymond James analyst Travis McCourt noted that the retail sales data will also reflect the impact of the resumption of student loan repayments starting in October. According to a joint survey released by CNBC and the National Retail Federation (NRF) on the same day, October retail sales excluding automobiles and gasoline decreased by 0.08% month-over-month.

Additionally, remarks from Federal Reserve officials including Director Lisa Cook, Vice Chair Philip Jefferson, Cleveland Fed President Loretta Mester, and Chicago Fed President Austan Goolsbee are also scheduled. Attention is focused on whether the hawkish tone similar to Fed Chair Jerome Powell's message last week, stating readiness to raise rates if necessary, will continue.

Currently, the market mostly expects a rate hold in December. According to the Chicago Mercantile Exchange (CME) FedWatch tool, as of today, federal funds futures reflect an over 85% probability that the Fed will hold rates at 5.25-5.5% at the next meeting. The probability of a baby step hike stands at around 14%, up from 9% the previous day.

Goldman Sachs strategist Peter Oppenheimer said, "The good news is that inflation and interest rates appear to have peaked, and economists are expecting a soft landing," adding, "This is favorable for the stock market and reduces downside risk for investors." However, he also noted that the potential for further stock price gains is limited due to a reduction in equity risk premiums.

Furthermore, this week, the Asia-Pacific Economic Cooperation (APEC) meeting, held in San Francisco until the 17th, will feature a face-to-face summit between U.S. President Joe Biden and Chinese President Xi Jinping. Besides the resumption of military talks and outcomes of the U.S.-China summit, attention will also focus on discussions within APEC regarding the prolonged Ukraine war and geopolitical risks stemming from the Middle East.

European stock markets are rising in a narrow range. Germany's DAX index rose 0.29%, France's CAC index increased 0.27%, and the UK's FTSE index climbed 0.48%.