By Noel Randewich and Shristi Achar A
(Reuters) – U.S. stocks dipped from recent highs on Monday, with investors turning cautious ahead of employment data due this week that could alter expectations that the Federal Reserve will cut interest rates early next year.
All three major indexes receded, with megacaps Microsoft, Apple, Nvidia and Amazon dropping between 1% and 3%, pressured by higher U.S. Treasury yields, which made returns on stocks less attractive.
Wall Street has rallied in recent weeks, buoyed by robust corporate earnings and expectations that the Fed will start cutting rates as soon as March.
The S&P 500 registered its highest close of the year on Friday as remarks from Fed Chair Jerome Powell acknowledged the central bank’s need to “move forward carefully” amid signs of economic softening, comments that bolstered expectations the Fed has finished raising rates.
Small-cap stocks rose on Monday, with the Russell 2000 up 0.65%, bringing its gain this year to over 6%, far less than the S&P 500’s 19% recovery over the same period.
“There is a lot of chop around here that is not necessarily meaningful,” said Tom Martin, a senior portfolio manager at GLOBALT Investments in Atlanta.
“We have a really important Fed meeting coming up, and what makes it important is that all of a sudden, the market has decided that they’re going to cut early next year.”
Ride-hailing service Uber Technologies rallied 3.4% after an announcement on Friday it will join the S&P 500 effective Dec. 18.
Shares of Alaska Air Group tumbled 15% after the carrier said on Sunday it would acquire peer Hawaiian Holdings for $1.9 billion, including debt. Hawaiian’s shares nearly tripled in value, helping lift the Russel index.
This week’s main macroeconomic focus will be Friday’s jobs report for November, which may help investors gauge the Fed’s likely interest rate path, as well as the potential for a “soft landing” – where the Fed manages to bring inflation under control while averting a recession.
Traders widely expect the central bank will keep rates unchanged at its meeting next week. Interest rate futures suggest a 58% probability the Fed will start cutting rates by March 2024, according to the CME Group’s FedWatch tool.
However, some analysts warn that markets have been too quick to price in lower interest rates.
Of the 11 S&P 500 sector indexes, seven declined, led lower by communication services, down 1.7%, followed by a 1.55% loss in information technology.
The S&P 500 was down 0.70% at 4,562.68 points.
The Nasdaq declined 1.09% to 14,149.33 points, while the Dow Jones Industrial Average was down 0.20% at 36,172.89 points.
Adding to declines on Monday were renewed fears about a widening of the war between Israel and Gaza after an attack on three commercial vessels in the southern Red Sea.
Shares of cryptocurrency firms such as Coinbase Global, Riot Platforms and Marathon Digital rallied over 7% as bitcoin crossed $40,000 for the first time this year.
Declining stocks outnumbered rising ones within the S&P 500 by a 1.2-to-one ratio.
The S&P 500 posted 38 new highs and no new lows; the Nasdaq recorded 107 new highs and 53 new lows.
(Reporting by Amruta Khandekar and Shristi Achar A in Bangalore, and by Noel Randewich in Oakland, Calif.; Editing by Anil D’Silva, Pooja Desai and Aurora Ellis)
