Dow Jones Industrial Average Drops As Chances Of US Interest Rate Increase Rises Sharply After Robust October US Jobs Report

This story was updated at 4:25 p.m. EST.

American stocks closed lower Monday as investors digest the implications of Friday’s robust October U.S. jobs report, which greatly increases the odds of a U.S. rate increase next month for the first time in nine years. The odds of a rate increase rose from 58 percent to 70 percent after the U.S. Department of Labor said the U.S. economy added 271,000 jobs, far greater than expected, while the unemployment rate dropped to 5 percent.

The rate hike will have global repercussions on government bond yields and currencies as well as raise the cost of borrowing across the U.S. economy, which will adversely impact U.S. corporate earnings. But some economists believe the overall impact of a rate hike will be minimal, at least initially. Investors have anticipated the possibility of a rate liftoff for more than a year and the U.S. Fed is going to raise rates slowly, factors that should make the shift in monetary policy relatively easy to navigate.

“The relatively calm reactions to Friday’s strong U.S. employment report support our view that the gradual return of U.S. interest rates towards more normal levels is unlikely to be the seismic shock that many have been fearing, particularly those following emerging markets and commodities,” Julian Jessop, chief global economist at Capital Economics, said in a research note Monday. “Nonetheless, we continue to expect further upward pressure on Treasury yields and on the US dollar, at least against other major currencies, and see U.S. equities underperforming their peers in Europe and Japan.”

The Dow Jones Industrial Average (INDEXDJX:.DJI) dropped 179.85 points, or 1.00 percent, to 17,730 on Monday. The S&P 500 index (INDEXSP:.INX) fell 20.62 points, or 0.98 percent, to 2,079. The Nasdaq composite (INDEXNASDAQ:.IXIC) was down 51.82 points, or 1.01 percent, to 5,095.

Nine of the 10 S&P 500 sectors were down with declines led by the consumer discretionary and energy sectors. Caterpillar Inc. (NYSE:CAT) led declines Monday among the 30 Dow components while E I Du Pont De Nemours And Co (NYSE:DD) led Dow gains.

The U.S. dollar was gaining slightly against the yen and euro while the U.S. 10-year Treasury note was up 1.07 percent as investors repositioned themselves against the possibility of a rate liftoff next month.

Global Markets

Asian stocks closed mostly up on Monday on a raft of positive banking news in Japan and heavy volume for mainland Chinese blue chip stock on news Beijing would resume initial public offerings after a four-month hiatus. China’s mainland stocks rallied despite weekend data showing a bigger-than-expected 6.9 percent drop in exports and an 18.8 percent drop in imports in October.

Tokyo’s Nikkei 225 gained 377 points, or 1.96 percent, to 19,643. A weaker yen against the dollar attracted investors to export-oriented companies like Toyota Motor. The Shanghai Composite Index gained 56.85 points, or 1.58 percent, to 3,647, led by strong buys orders for major mainland companies like PetroChina and China Construction Bank. Hong Kong’s Hang Seng lost 140.56 points, or 0.61 percent, to 22,727, following global equities down in anticipation of a U.S. Federal Reserve interest rate liftoff in December.

European stocks closed down on Monday as traders digested Friday’s robust U.S. jobs report that greatly increases the chance rates will soon begin to rise, marking the beginning of the end to cheap money that has fueled a years-long rally in equities. London’s FTSE lost 58.74 points, or 0.92 percent, to 6,295. France’s CAC 40 shed 44.30 points, or 1.46 percent, to 4,911. Germany’s DAX dropped 172.58 points, or 1.57 percent, to 10,815.

Oil Prices

Ali al-Naimi, Saudi Arabia’s widely watched oil minister said during a roundtable in Doha that he expected low prices to spur global demand, which would ease downward pressure on crude. The news caused oil prices to gain slightly on Monday morning in New York, but were trending down in the afternoon.

West Texas Intermediate crude oil, the U.S. benchmark for oil prices, lost 0.72 percent to $43.97 per barrel for December delivery on the New York Mercantile Exchange. Brent crude, the global benchmark for oil prices, lost 0.42 percent to $47.22 on the London ICE Futures Exchange.

Earnings-Season Monday Market Movers

Dish Network Corp. (NASDAQ:DISH) reported before the opening bell in New York better-than-expected profit of $196 million but missed analysts’ revenue forecast for the June-September quarter at $3.73 billion. The Colorado-based satellite television provider said it lost about 23,000 pay-TV subscribers in the quarter as it struggles with cord-cutters and disputes with content providers. Dish stock was down 1.02 percent to $63.09 by the closing bell on Monday. Dish shares are down 13.44 percent for the year.

Hertz Global Holdings Inc. (NYSE:HTZ) reported Monday morning both revenue and profit misses for the three months ending September. Total sales of $2.98 billion for the quarter were lower than the $3.12 billion reported in the same period last year, and lower than the $3.07 billion projected by analysts polled by Thomson Reuters. Hertz reported adjusted net income of $226 million, or 49 cents per share, up from $203 million, or 44 cents per share from the same period last year. Forecaster had expected earnings per share of 54 cents. Hertz stock plunged 12.60 percent to $16.44 on Monday. Hertz shares are down 34.08 percent for the year.

Priceline Group Inc. (NASDAQ:PCLN) announced Monday morning that it expects lower profit in the last three months of the year as a stronger dollar batters revenue eared in foreign currencies. The Connecticut-based online travel agency also expected a decline in U.S. travel booking. The company said it earned $1.20 billion in net income, up from $1.06 billion in the same quarter last year, beating analysts’ forecasts of $1.14 billion. Revenue grew from $2.84 billion to a higher-than-expected $3.10 billion. Priceline’s stock dropped on the lower profit guidance for the fourth quarter, by 9.57 percent to $1,311.40 on Monday. The company’s shares are up 14.99 percent for the year.

Plum Creek Timber Co. Inc. (NYSE:PCL) stock leaped 17.30 percent, to $47.26, on Monday after Weyerhaeuser Co. (NYSE:WY) announced it would purchase its rival for $8.4 billion pending shareholder approval. The deal would create the largest nongovernment timberland owner in the U.S. Weyerhaeuser stock dropped 2.96 percent Monday, to $29.50, after the deal was announced. Weyerhaeuser shares are down 17.80 percent for the year.

Apache Corporation (NYSE:APA) shares leaped 13.15 percent Monday, to $53.94 after a report from Bloomberg News emerged Sunday the Houston-based oil and gas company is the target of an unsolicited bid from an unknown source. Apache has hired Goldman Sachs to establish a defense against a possible hostile takeover. Apache has been struggling in recent years over poorly executed projects in Argentina and Australia, according to the report. Apache shares are down 13.96 percent for the year.