Stocks Fall As Traders Dial Back Rate Cut Bets; Dollar, Treasury Yields Rise: What's Driving Markets Monday?

After enjoying 13 out of 14 positive weeks, Wall Street kicked off Monday on a weaker note as traders revise down their expectations regarding Fed interest rate cuts.

Stronger-than-expected economic data — and comments from Federal Reserve officials indicating the central bank has no immediate plans to reduce rates — pushed major U.S. stock averages into the red.

Both Fed Chair Jerome Powell and Minneapolis Fed President Neel Kashkari issued warnings that monetary policy may remain restrictive for a while due to the remarkable economic resilience.

In January, the services sector expanded beyond expectations, as indicated by the latest ISM PMI figures, marking the strongest growth since September 2023 and extending its 13th consecutive month of expansion.

Traders have now embraced the idea that a rate cut in March is off the table. Furthermore, they are reducing their rate cut expectations for 2024, going from six rate cuts last week to just about five as of Monday.

Treasury yields surged across all maturity levels, with the 10-year yield increasing by 13 basis points to 4.15%, causing the dollar to strengthen by 0.5% against a basket of major currencies.

Small-cap stocks were hit the hardest, with the iShares Russell 2000 ETF IWM experiencing a 1.2% decline. Large-cap indices also saw declines, although with a more modest impact.

Bonds fell, with the iShares 20+ Year Treasury Bond ETF TLT sliding 1.9% after a 2% decline on Friday.

Oil prices rebounded, with West Texas Intermediate (WTI) crude oil rising by 1%, driven by escalating tensions in the Middle East, triggered by U.S. strikes over the weekend that targeted Iran-related sites in Syria and Iraq.

Monday’s Performance In Major Indices, ETFs

The SPDR S&P 500 ETF Trust SPY was 0.2% lower to $493.17, the SPDR Dow Jones Industrial Average DIA fell 0.7% to $383.95 and the tech-heavy Invesco QQQ Trust QQQ eased 0.1% to $428.55, according to Benzinga Pro data.

Sector-wise, the Technology SPDR Select Sector Fund XLK outperformed, up 0.3%, followed by the Energy SPDR Select Sector Fund XLE, up 0.1%.

Notable laggards were the Real Estate SPDR Select Sector Fund XLRE, which plummeted 1.8%, and the Materials SPDR Select Sector Fund XLY, down 2.2%

On the industry front, semiconductors rallied, with the VanEck Semiconductor ETF SMH up 1.9%.

Monday’s Stock Movers

• Nvidia Corp. NVDA rose 4% following a bullish note by Goldman Sachs, which raised its price target on the chipmaker $800.
• Meta Platforms Inc. META fell 3% after surging as much as 20% on Friday.
• Snap Inc. SNAP fell 4% after the company announced it would cut its workforce by 10%.
• Catalent Inc. CTLT rose nearly 10% after Danish pharma giant Novo Nordisk A/S NVO agreed to buy the company for $16.5 billion in cash.
• Caterpillar Inc. CAT rose nearly 2% after reporting better-than-expected results last quarter.
• Other companies reacting to earnings reports were McDonald’s Corp. MCD, down 4%, Estee Lauder Companies Inc. EL, up 13%, Air Products & Chemicals Inc. APD, down 14%, ON Semiconductor Corp. ON, up 10%, and IDEXX Laboratories Inc. IDXX, up 6.4%.
• Companies that will report their earnings after the closing bell are Vertex Pharmaceuticals Inc. VRTX, Simon Property Group Inc. SPG and Palantir Technologies Inc. PLTR

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