The main U.S. stock indexes ended lower on Monday as investors shifted gears after considering the possibility that the U.S. Federal Reserve may take longer to start cutting interest rates.
Traders are keeping a close eye on speeches by Fed officials this week, including Chair Jerome Powell on Tuesday, for any change in the central bank’s rhetoric after data last week showed services activity was strong in January as well as strong job growth.
“We got that blowout jobs report, and people have had to reassess what the outlook for the Fed and the economy is. Tomorrow it will be interesting to see if Powell continues his transformation from hawk to dove,” said Brian Jacobsen, senior investment strategist at Allspring Global Investments.
U.S. Treasury Secretary Janet Yellen said on Monday the United States may avoid a recession as inflation is coming down while the labor market remains strong.
After taking a hit in 2022, U.S. equities have recovered strongly in 2023, led by megacap growth stocks amid short-lived hopes that the Fed will temper its aggressive rate hikes, which in turn could alleviate some pressure on equity valuations.
Money market participants now see the benchmark rate peaking at 5.1% by July, in line with what most policymakers have backed repeatedly.
Yield on the 10-year U.S. Treasury note extended gains to a four-week high.
On the corporate side, analysts expect quarterly earnings of S&P 500 firms to decline 2.8% in the fourth quarter, according to Refinitiv.
According to preliminary data, the S&P 500 (.SPX) lost 25.28 points, or 0.61%, to end at 4,111.20 points, while the Nasdaq Composite (.IXIC) lost 119.63 points, or 1.00%, to 11,887.33. The Dow Jones Industrial Average (.DJI) fell 40.56 points, or 0.12%, to 33,885.45.
Tyson Foods Inc (TSN.N) fell sharply after missing analysts’ estimates for quarterly revenue and profit.
Contrary to the overall trend, Tesla Inc (TSLA.O) rose after a U.S. jury on Friday found Chief Executive Elon Musk and his company were not liable for misleading investors when Musk tweeted in 2018 that he had “funding secured” to take the electric-vehicle maker private.
U.S.-listed Chinese stocks such as Pinduoduo Inc (PDD.O) and Baidu Inc fell on geopolitical concerns after a U.S. military fighter jet shot down a suspected Chinese spy balloon off the coast of South Carolina on Saturday.
Most of the 11 major S&P 500 sector indexes were in the red, except for utilities.