Dow plunges after Fed chair’s rate comments spook markets

Wall Street’s main indexes fell on Monday as investors weighed U.S. corporate earnings, while U.S. Treasury yields rose after Federal Reserve Chairman Jerome Powell firmly pushed back on market expectations of an imminent rate cut. did.

Powell said in an interview aired Sunday that more evidence of a sustained downward trend in inflation was needed to justify rate cuts, while Minneapolis Fed President Neel Kashkari said in an interview announced Monday. In his essay, he said the economy’s resilience could hold off rate cuts for a while.

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

The latest data from the Institute for Supply Management showed growth in the U.S. services sector accelerated in January, with a measure of input prices rising to an 11-month high.

Friday’s data suggested the labor market is showing resilience in the face of tighter credit conditions, but there is widespread uncertainty over when borrowing costs will be lowered.

U.S. Treasury yields rose, with the two-year bond yield rising to 4.48%, its highest level in a month.

“The economy is in good shape and we’re not heading into a recession, but the economy is so strong that the Fed could cut rates later, reducing the overall rate cut,” said Sam Stovall, chief investment strategist at CFRA Research. Investors are concerned that this may be the case.”

Traders expect a 67% chance of a rate cut of at least 25 basis points in May, rising to nearly 94% in June, according to the CME FedWatch tool.

Investors also took a breather after Wall Street’s recent bull run, which saw the benchmark S&P 500 and blue-chip Dow end at record highs on Friday, boosted by solid results from Metaplatform and Amazon. .

Nearly half of S&P 500 companies have now reported earnings, and fourth-quarter earnings estimates have improved significantly, with about 80% of previous reports beating expectations, according to LSEG data on Friday.

Caterpillar soared 1.2% on higher quarterly profits, while Estée Lauder, the MAC lipstick maker, soared 14.6% as it looks to cut about 3% to 5% of its workforce.

Boeing Co. fell 2.1% after announcing a new quality defect in some of its 737 MAX planes, causing delays in some deliveries.

Tesla fell 3.4% after Piper Sandler lowered its price target and on reports that German software company SAP will no longer source its company cars from the Tesla EV maker.

Nvidia jumped 4% to a new all-time high after Goldman Sachs raised its price target.

Catalent soared 10% to a new all-time high after Novo Nordisk’s parent company, Novo Holdings, plans to acquire the contract drugmaker in an all-cash deal worth $11.5 billion.