Wall Street’s main indexes fell on Monday as Treasury yields rose after Fed Chair Jerome Powell pushed back firmly against market speculations of imminent rate cuts, while investors assessed earnings from corporate America.
In an interview aired on Sunday, Powell said more evidence on a sustainable downtrend in inflation was needed to warrant lower rates, while Minneapolis Fed President Neel Kashkari wrote in an essay published on Monday that a resilient economy could defer rate cuts for some time.
The Dow Jones Industrial Average was down 387 points, or 1%, at 38,267, the Nasdaq slid 0.7% and the S&P 500 was down 0.6%.
Fresh data from the Institute for Supply Management showed the US services sector’s growth picked up in January, with a measure of input prices rising to an 11-month high.
While Friday’s data signaled the labor market’s resilience in the face of tight credit conditions, uncertainty over when borrowing costs might be lowered prevailed.
US Treasury yields were on the rise, with the two-year yield jumping to a one-month high of 4.48%.
“Investors are concerned that while the economy is good and we’re not headed for recession, it is too strong and so the Fed might cut rates later and have fewer cuts in all,” said Sam Stovall, chief investment strategist at CFRA Research.
Traders expect a 67% chance of an at least 25-basis-point rate cut in May and a near-94% chance in June, according to the CME FedWatch Tool.
Investors also took a breather after Wall Street’s recent bull-market run that saw the benchmark S&P 500 and the blue-chip Dow ending at record high levels on Friday, boosted by Meta Platforms and Amazon’s solid results.
Results are now in from nearly half of the S&P 500 firms and fourth-quarter earnings estimates are improving sharply, with about 80% of the reports so far beating expectations, according to LSEG data on Friday.
Caterpillar jumped 1.2% after a higher quarterly profit, while Estee Lauder surged 14.6% as the MAC lipstick maker aims to cut about 3% to 5% of its workforce.
Boeing dropped 2.1% after saying a new quality glitch in some 737 MAX planes would delay some deliveries.
Tesla lost 3.4% after Piper Sandler slashed the stock’s price target and on a report German software company SAP will no longer source its company cars from the EV maker.
Nvidia jumped 4%to a record high following a price-target raise by Goldman Sachs.
Catalent soared 10% to an all-time high on Novo Nordisk parent Novo Holdings’ plans to buy the contract drugmaker in an $11.5-billion all-cash deal.