Stocks sink as markets brace for big week with Fed, earnings | Business News

NEW YORK (AP) — Stocks fell on Monday as Wall Street braced itself for a week of potentially market-moving events, from decisions on interest rates around the world to earnings reports from the largest U.S. companies.

The S&P 500 fell 1.3%, reversing some of the gains that took it to its highest level since early December last week. The Dow Jones Industrial Average fell 260 points, or 0.8%, while the Nasdaq Composite was down 2%.

Markets have spun lately on concerns that the economy and corporate earnings may be set for a sharp decline, along with competing hopes that cooling inflation will prompt the Federal Reserve to ease interest rates.

The central bank’s next interest rate decision is due next Wednesday, and most investors expect it to announce a hike of just 0.25 percentage point. That would be the smallest rise since March, after a series of 0.75-point hikes and then a 0.50-point rise, and it would mean less additional pressure on the economy.

Higher interest rates fight inflation by intentionally slowing the economy while dragging investment prices down. Inflation has been cooling since the summer amid last year’s blizzard of rate hikes, but the economy is also showing signs of concern.

The big question is whether Fed Chair Jerome Powell will give markets Wednesday afternoon what they want to hear — hints that rate hikes will end soon and rate cuts may even be possible this year — or if he’ll stick to it The Fed’s mantra is that it wants to keep interest rates higher for longer, even if a mild recession hits.

“I think they have no intention of easing rates this year,” said Sam Stovall, chief investment strategist at CFRA Research, adding that the Fed waits, on average, about nine months after its last rate hike before doing it lowers.

“They’ll reiterate that they don’t want to make the mistakes of the 1970s,” he said, “but I think in the back of their minds they’ll say whatever inflation indicator you look at, they’re all going down in a stair-step pattern.”

The central banks for Europe and the UK will also announce their latest rate hikes this week.

Aside from interest rates, more than 100 companies in the S&P 500 are scheduled this week to report how much profit they made over the last three months of 2022. Among them are the technology heavyweights Apple, Amazon and the parent company of Google. Because these companies are three of the four largest on Wall Street by market value, their stock movements have much more impact on the S&P 500 than others.

For example, Apple’s 2% drop on Monday was the heaviest weight in the S&P 500.

The only other stock that rivals them in size, Microsoft, rocked Wall Street last week when it forecast forthcoming earnings that raised concerns about a slowdown in corporate technology spending. The stock fell 2.2% on Monday.

Overall, the S&P 500 fell 52.79 points to 4,017.77. The Dow lost 260.99 to 33,717.09 and the Nasdaq fell 227.90 to 11,393.81.

Strategists at Morgan Stanley led by Michael Wilson are warning that tougher times could lie ahead.

“The reality is that earnings are proving to be even worse than the data feared, particularly where margins are concerned,” they wrote in a report. ‚ÄúSecond, investors seem to have forgotten the cardinal rule of ‘don’t fight the Fed.’ Maybe this week will serve as a reminder.”

Later this week, the US government will also release its latest monthly update on the jobs market. Hiring has remained resilient across the economy, although housing and other corners have weakened severely under the weight of the Fed’s rate hikes over the past year.

Some big tech companies have announced high-profile layoffs after admitting they misjudged their post-pandemic boom. However, job cuts could gradually spread to other areas of the economy. Hasbro and 3M announced layoffs last week.

All told, economists expect Friday’s report to show US employers added 187,500 more jobs than they shed in January. That would be a slowdown from the 223k set in December.

The yield on the 10-year government bond rose to 3.53% from 3.51% late Friday. The two-year yield, which tends to move more sharply on anticipation of Fed action, rose to 4.25% from 4.20%.

AP Business Writers Damian J. Troise, Elaine Kurtenbach, and Matt Ott contributed.

Copyright 2023 The Associated Press. All rights reserved. This material may not be published, broadcast, transcribed or redistributed without permission.

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