The S&P 500 and Dow Industrials slipped on Tuesday, pressured by a modest rise in Treasury yields as investors assess the timing and size of the Federal Reserve’s interest rate cuts in 2024 ahead of inflation data this week.
Expectations the central bank could begin cutting rates as soon as March have been slowly decreasing, with CME’s FedWatch Tool showing a 63.8% chance for a cut of at least 25 basis points (bps) for the month, down from 79% a week ago.
That has kept Treasury yields hovering near the 4% mark, with the benchmark 10-year U.S. Treasury yield last up slightly at 4.01% after reaching a high of 4.053% in the session.
Investors are bracing this week for more Treasury supply and inflation data through the consumer price index (CPI) and producer price index (PPI). Earnings season unofficially begins on Friday, with reports from banks such as JPMorgan.
“It’s all speculation on what the Fed may or may not do and the bond market clearly got ahead of itself in anticipating rate cuts starting in March,” said Tim Ghriskey, senior portfolio strategist at Ingalls & Snyder in New York.
“The fed futures will move around based on earnings definitely and on the data. ... The market is just jumping one way or the other trying to get ahead of things if they occur.”
The Dow Jones Industrial Average fell 198.71 points, or 0.54%, to 37,481.92; the S&P 500 lost 8.14 points, or 0.17 %, at 4,755.63; and the Nasdaq Composite gained 21.32 points, or 0.14 %, at 14,864.17.
Most of the 11 major S&P sectors fell, with energy the weakest with a decline of nearly 2%. Tech was one of only three sectors in positive territory, with gains of about 0.3%.
Stocks had rallied on Wednesday, with the Nasdaq and S&P 500 scoring their first daily percentage climbs of more than 1% since Dec. 21 and biggest one-day percentage advances since Nov. 14.
Atlanta Fed President Raphael Bostic on Monday stressed the need to keep monetary policy tight, while Fed Governor Michelle Bowman retreated from her persistently hawkish view and signaled a willingness to support eventual rate cuts as inflation eases.
Investors will parse Fed Vice Chair for Supervision Michael Barr’s remarks for his perspectives on the policy outlook later on Tuesday.
Boeing weakened for a second straight session, down 1.3%, as the U.S. National Transportation Safety Board continued its probe into a recent mishap.
Juniper Networks surged 22.2% after a source told Reuters that Hewlett Packard Enterprise was in talks to buy the networking product maker in a $13-billion deal. The server maker dropped 7.3%.
Declining issues outnumbered advancers for a 2.1-to-1 ratio on the NYSE and for a 1.6-to-1 ratio on the Nasdaq.
The S&P index recorded 10 new 52-week highs and no new lows, while the Nasdaq recorded 75 new highs and 71 new lows.
Goldman’s prime brokerage department, which serves hedge funds, saw stockpickers’ performances fall 1.07% in the week between Dec. 29 and Jan. 4, the note said.
Hedge funds got hit by falling technology and media-related stocks, said a separate note by Morgan Stanley dated Jan. 5 but seen by Reuters on Monday.
Global hedge funds trading long and short positions in stocks saw a 1.2% negative performance for the week ending Jan. 5, said the note.
Hedge funds did not hold as many short positions going into the week and therefore, what profits they might have picked up from falling stock markets were not enough to cover their bullish bets.
Stock-picking hedge funds often hold both long and short positions in order to take advantage of both upward and downward stock price movements.
Elsewhere, hedge funds also ditched consumer discretionary companies making products that shoppers typically like to buy but do not necessarily need, the Goldman Sachs note said.