Stocks sank Monday as Wall Street prepped for a week full of potentially market-moving events, from decisions on interest rates around the world to earnings reports from the biggest U.S. companies.
The S&P 500 dropped 1.3%, giving back some of the gains that had carried the benchmark index last week to its highest level since early December. The Dow Jones Industrial Average fell 0.8%, while the Nasdaq composite sank 2%.
Markets have been veering recently on worries that the economy and corporate profits may be set for a steep drop-off, along with competing hopes that cooling inflation will get the Federal Reserve to take it easier on interest rates.
The central bank's next decision on rates is coming Wednesday, and most investors expect the Fed to announce an increase of just a quarter of a percentage point. That would be the smallest increase since March, after a spate of three-quarter-point increases, and then a half-point increase in December.
Higher rates combat inflation by intentionally slowing the economy, while also dragging down investment prices. Inflation has been cooling since the summer amid last year's blizzard of rate increases, but the economy has also been showing signs of concern.
The big question is whether Fed Chair Jerome Powell on Wednesday will give markets what they want to hear -- hints that rate increases will end soon and that rate cuts may even be possible late this year -- or stick to the Fed's mantra that the central bank plans to keep rates higher for longer, even if a modest recession hits.
"I think that they have no intention of cutting rates this year," said Sam Stovall, chief investment strategist at CFRA Research, adding that the Fed waits an average of roughly nine months after its last rate increase before cutting.
"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're going to say no matter which inflationary indicator you look at, they're all heading in a stairstep downward pattern."
Central banks for Europe and for the United Kingdom are also set to announce their latest rate increases this week.
Beyond interest rates, more than 100 companies in the S&P 500 are scheduled this week to report how much profit they made in the last three months of 2022. Among them are tech heavyweights Apple, Amazon and Google parent Alphabet.
Because these companies are three of the four biggest on Wall Street by market value, their stock movements carry much more sway on the S&P 500 than others.
Apple Inc.'s 2% drop Monday, for example, was the heaviest weight on the S&P 500.
The only other stock rivaling them in size, Microsoft, shook Wall Street last week when the software-maker gave forecasts for upcoming results that raised worries about a slowdown in corporate tech spending. Shares of Microsoft Corp. fell 2.2% Monday.
All told, the S&P 500 fell 52.79 points to 4,017.77. The Dow lost 260.99 points to 33,717.09, and the Nasdaq fell 227.90 points to 11,393.81.
Strategists at Morgan Stanley led by Michael Wilson warn tougher times may be ahead.
"The reality is that earnings are proving to be even worse than feared based on the data, especially as it relates to margins," they wrote in a report. "Secondly, investors seem to have forgotten the cardinal rule of 'Don't Fight the Fed'. Perhaps this week will serve as a reminder."
Later this week, the U.S. government will also give its latest monthly update on the job market. Hiring has remained resilient across the broad economy, even as housing and other corners weaken sharply under the weight of all the Fed's rate increases.
Some big tech companies have announced high-profile layoffs after acknowledging they misread their boom coming out of the pandemic. But job cuts may be starting to spread to other areas of the economy. Hasbro and 3M last week announced layoffs.
All told, economists expect Friday's report to show U.S. employers added 187,500 more jobs than they cut during January. That would be a slowdown from December's hiring of 223,000.
The yield on the 10-year Treasury rose to 3.53% from 3.51% late Friday. The two-year yield, which tends to move more on expectations of Fed actions, rose to 4.25% from 4.20%.
Information for this report was contributed by Damian Troise, Elaine Kurtenbach and Matt Ott of The Associated Press.