Stocks slip as worries about interest rates weigh on Wall Street
Wall Street shaved off more of its strong start to the year Monday, adding to losses from the end of last week driven by worries about higher interest rates and inflation.
The Standard & Poor’s 500 index fell 25.40 points, or 0.6%, to 4,111.08 for its second straight fall after a stunningly strong report on the U.S. jobs market dented the market’s hopes for easing interest rates. The Dow Jones industrial average fell 34.99 points, or 0.1%, to 33,891.02, while the Nasdaq composite dropped 119.50 points, or 1%, to 11,887.45.
Some of the sharpest action was again in the bond market, where expectations are rising for the Federal Reserve to stay firm on keeping interest rates higher to combat inflation. The Fed has been signaling such an approach for a long time, but the market has stubbornly refused to believe it.
The yield on the two-year Treasury, which tends to track expectations for the Fed, leaped again. It zoomed to 4.47% from 4.29% late Friday and just 4.10% before the release of the jobs report. That’s a significant move for the bond market. The 10-year yield, which helps set rates for mortgages and other important loans, jumped to 3.64% from 3.52% late Friday.
Higher rates are intended to slow the economy by suppressing demand for purchases that can fuel inflation. But they also raise the risk of a recession and hurt markets in the meantime.
Inflation has slowed sharply, so why is the Federal Reserve still intent on killing jobs and economic growth?
Friday’s jobs report showed that U.S. employers added a third of a million more jobs than expected last month despite higher rates. Normally, such strength would be good news for markets. At the least, it should mean higher sales for many companies.
But it also raised worries that a too-strong labor market will keep inflationary pressures alive and force the Fed to keep rates higher for longer. Investors have been hoping that cooling inflation could get the Fed to pause its rate increases soon and even cut rates late this year.
Such hopes had driven a big rally on Wall Street to start the year, and the S&P 500 still remains up more than 7% for 2023. The stocks leading the way had been the ones most beaten down last year by the swift rise in rates engineered by the Fed to combat inflation. Those include tech stocks and others seen as the riskiest or most expensive.
Investors came into the year extremely skeptical about such stocks, but once they ticked up, momentum for them quickly snowballed. Analysts have said the rebound was more about investors’ sentiment than any changes in the economy or other fundamentals.
The positive sentiment has been partially checked by more signs of softer demand in the technology sector and more caution about spending from businesses overall.
Stocks are currently in a “go nowhere fast zone after a superb January performance,” said Terry Sandven, chief equity strategist at U.S. Bank Wealth Management. He expects trading to remain choppy until investors get more clarity on the economic path ahead.
“It’s still too early to determine to what extent we’ll have a recession,” Sandven said.
Fed Chair Jerome H. Powell may give some more clues about where rates are heading Tuesday, when he’s scheduled to speak at the Economic Club of Washington, D.C.
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Besides Powell, markets are also waiting to hear earnings reports from nearly 100 companies in the S&P 500 this week.
With roughly half the companies in the S&P 500 having reported results from the last quarter, they’re on track for a roughly 5% drop from year-earlier levels, according to FactSet. That would be the first such drop since the summer of 2020, when the pandemic was ravaging the global economy.
Tyson Foods fell 4.6% after it reported weaker profit and revenue for its latest quarter than analysts expected.
Dell Technologies dropped 3% after it said it will cut about 5% of its workforce. The company’s vice chairman said in a message to employees that “market conditions continue to erode with an uncertain future.”
AP writers Joe McDonald and Matt Ott contributed to this report.
