The three major indexes on Wall Street ended the first trading day of December lower. Policy remarks from the Bank of Japan (BOJ) and the People's Bank of China (PBOC) rattled investor sentiment, and a sharp drop in bitcoin also weighed on stocks.
On the 1st (U.S. Eastern time) at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average fell 427.09 points, or 0.90%, to close at 47,289.33. The Standard & Poor's (S&P) 500 slipped 36.46 points, or 0.53%, to 6,812.63, and the Nasdaq composite lost 89.76 points, or 0.38%, to finish at 23,275.92.
Market participants had expected improved consumer sentiment and stock strength around Black Friday and Cyber Monday, but central bank remarks weighed on the market on the day. According to Mastercard's consumer trend data service "SpendingPulse," this year's Black Friday retail sales (excluding autos) rose 4.1% from a year earlier. Adobe Analytics said online spending the same day reached $11.8 billion, up 9.1% year over year. Even so, stock indexes fell sharply before the open.
The first headwind was the Bank of Japan. BOJ Governor Ueda Kazuo said, "We will consider whether to raise the benchmark interest rate at the next monetary policy meeting," which markets interpreted as the possibility of a December rate hike. As concerns spread that yen carry trades could be unwound, downward pressure extended to U.S. stocks and bonds. The yen carry trade is a strategy of borrowing low-interest yen to invest in high-yield assets; when rates rise, positions can be unwound in the opposite direction.
The second headwind was China's cryptocurrency policy. On the 29th of last month, the People's Bank of China, together with the Ministry of Public Security and others, warned that stablecoins pose risks such as fraud, money laundering, and illegal cross-border capital flows, and designated cryptocurrency transactions, including stablecoins, as "illegal financial activities." According to the South China Morning Post (SCMP), this is the first official step by the Chinese government to clearly outlaw stablecoins. Bitcoin prices plunged more than 5% in response, and related corporations' shares were also hit.
In the aftermath, shares of Strategy, whose main business is buying bitcoin, fell more than 3%, with an intraday drop as steep as 12.17%. Market experts also said policies in Japan and China affected global risk assets. Greg Faranello of AmeriVet Securities said, "Japan's rate normalization is a 'stop-and-go' approach, but if the 'go' materializes, the market has no choice but to be jolted as it was today." Fawad Razaqzada of StoneX also noted, "Investors who had been using the yen carry trade are facing pressure on speculative assets as Japanese bond yields rise."
Despite strong consumption, retail stocks were limited. Walmart rose 0.92%, and The Home Depot, Inc. added 0.11%. In contrast, Costco fell 0.18%. Card companies Visa and Mastercard each declined more than 1%. Shopify, which suffered a brief outage on Cyber Monday, plunged more than 5%.
By sector, all groups fell except energy, consumer discretionary, and technology. Utilities slumped 2.35%, and health care, industrials, communication services, and real estate each dropped more than 1%. Among tech names, Apple, Amazon, and Nvidia rose. Apple and Amazon were buoyed by expectations for increased traffic and sales during the year-end shopping season.
In entertainment, Disney rose 2.20% on the back of the global success of the second installment of the animated film "Zootopia." In contrast, Coupang fell more than 5% amid the fallout from a massive personal data leak, with an intraday drop as steep as 7.21%.
According to CME FedWatch, the federal funds futures market priced in an 87.6% chance of a 25-basis-point rate cut in December. The CBOE Volatility Index (VIX) rose 0.89 point, or 5.44%, to 17.24 from the previous session.