Dow plunges more than 350 points after Fed chair’s rate comments spook markets

Business

By Reuters

Published
Feb. 5, 2024, 11:38 a.m. ET

On Monday, Wall Street’s main indexes saw a decline as Treasury yields went up following Fed Chair Jerome Powell’s dismissal of rumors about impending rate cuts. Investors also examined corporate earnings.

In a Sunday interview, Powell emphasized the need for more evidence of a sustained decrease in inflation before considering lower rates. Minneapolis Fed President Neel Kashkari echoed this sentiment in an essay released on Monday, suggesting that a strong economy could postpone rate cuts.

The Dow Jones Industrial Average dropped 387 points, or 1%, to 38,267. The Nasdaq slid 0.7% and the S&P 500 was down 0.6%.

New data from the Institute for Supply Management indicated an increase in the growth of the US services sector in January, with input prices reaching an 11-month high.

The Dow plummeted more than 350 points, equivalent to 1%. Getty Images

Although data from Friday showed the labor market’s strength in the face of tight credit conditions, uncertainty about the timing of potential rate cuts prevailed.

US Treasury yields rose, with the two-year yield reaching a one-month high of 4.48%.

Sam Stovall, chief investment strategist at CFRA Research, commented, “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.”

Traders anticipate a 67% chance of at least a 25-basis-point rate cut in May and a nearly 94% chance in June, according to the CME FedWatch Tool.

Fed Chair Jerome Powell emphasized the need for more evidence of a sustainable downtrend in inflation to justify lower rates. REUTERS

Investors also paused after the recent record-breaking run of the benchmark S&P 500 and the blue-chip Dow, which reached all-time high levels on Friday, driven by strong results from Meta Platforms and Amazon.

Nearly half of the S&P 500 companies have reported their results, and fourth-quarter earnings estimates are improving significantly. Around 80% of the reports have so far exceeded expectations, according to LSEG data from Friday.

Caterpillar saw a 1.2% increase in the wake of higher quarterly profit, while Estee Lauder surged 14.6% as the MAC lipstick maker aims to reduce its workforce by about 3% to 5%.

Boeing declined by 2.1% after announcing a new quality issue in some 737 MAX planes that would cause delays in deliveries.

Traders anticipate a 67% chance of at least a 25-basis-point rate cut in May and a nearly 94% chance in June, according to the CME FedWatch Tool. AP

Tesla experienced a 3.4% drop after Piper Sandler lowered the stock’s price target and a report emerged that German software company SAP will no longer use the EV maker as a source for its company cars.

Nvidia surged 4% to a record high following a price-target raise by Goldman Sachs.

Catalent skyrocketed 10% to an all-time high on plans by Novo Nordisk parent Novo Holdings to acquire the contract drugmaker in an $11.5-billion all-cash deal.

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