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 S&P 500 fell 25.40 points, or 0.6%, to 4,111.08 for its second straight fall after a stunningly strong report Friday 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 119.51 points, or 1%, to 11,887.45.
Some of the sharpest action Monday was again in the bond market, where expectations are rising for the Federal Reserve to stay firm on keeping interest rates higher for longer to combat inflation. It's something the Fed has been talking about for a long time, but also something investors have been stubborn to heed.
The yield on the two-year Treasury, which tends to track expectations for the Fed, leaped to 4.47% from 4.29% late Friday, and just 4.10% the previous day. 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 interest rates slow the economy by design, in hopes of limiting purchases by households and businesses that can fuel inflation. But higher rates also raise the risk of a severe recession and hurt markets.
Friday's jolting jobs report showed that U.S. employers added a third of a million more jobs than expected last month, despite the higher rates and signs of slowing inflation. Normally such strength is good news for markets. At least it should mean higher sales for many companies.
But the report also raised worries that the still-strong labor market will keep inflationary pressures alive and force the Fed to keep rates higher for longer. That's in direct opposition to hopes in the market that cooling inflation could get the Fed to pause its rate increases soon, and then cut rates late this year.
Such hopes had driven a big rally on Wall Street to start the year, and the S&P 500 so far remains up by more than 7% this year. Stocks leading the way Monday 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 2023 extremely skeptical about such stocks, and once they got a spark higher, momentum for them quickly snowballed. Analysts have said the rebound was more about improvements in 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 Powell may give some more clues today about where rates are heading. Powell is scheduled to speak at the Economic Club of Washington, D.C.
Besides Powell, markets are also waiting to hear from nearly 100 companies in the S&P 500 this week about earnings made during the final three months of 2022.
Earnings reporting season is at its halfway point, and the companies overall are 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 covid-19 pandemic was ravaging the global economy.
Shares of Tyson Foods Inc. fell 4.6% Monday after reporting weaker profit and revenue for its latest quarter than analysts expected.
Dell Technologies Inc. dropped 3% after the company 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."
Information for this article was contributed by Joe McDonald and Matt Ott of The Associated Press.