Major U.S. stock indexes fell on Monday, dragged lower by declines in technology and other megacap shares, as investors looked toward a major week of events including central bank meetings and a slew of earnings reports.
The tech sector slumped 1.7%, with most sectors trading lower. Shares of Apple Inc, Amazon.com Inc and Google parent Alphabet Inc, which are all due to post results later this week, dropped over 1%.
More than 100 S&P 500 companies are expected to report results this week, which also includes central bank meetings in the United States and Europe and closely watched U.S. employment data.
“The market has had a big run and the trading is a bit more cautious heading into a week which likely will be an inflection point for the overall market,” said Keith Lerner, co-chief investment officer at Truist Advisory Services.
The Dow Jones Industrial Average fell 125.11 points, or 0.37%, to 33,852.97, the S&P 500 lost 38.49 points, or 0.95%, to 4,032.07 and the Nasdaq Composite dropped 184.56 points, or 1.59%, to 11,437.15.
U.S. Treasury yields rose, providing another pressure point for tech shares that have otherwise rebounded to start the year after a rough 2022.
Despite Monday’s declines, the S&P 500 was on track to post its biggest January gain since 2019.
The U.S. central bank is seen hiking the Fed funds rate by 25 basis points at the end of its two-day policy meeting on Wednesday, following a 2022 in which the Fed aggressively hiked rates to control soaring inflation.
Fed Chair Jerome Powell’s news conference will be scrutinized for signs of how high rates may go and how long they could stay elevated. Meanwhile, the European Central Bank is expected to deliver another large rate hike on Thursday.
Investors are also focused on earnings reports, amid concerns the economy may be facing a recession. With more than 140 companies having reported so far, S&P 500 earnings are expected to have fallen 3% in the fourth quarter compared with the prior-year period, according to Refinitiv IBES.
In company news, shares of Johnson & Johnson fell over 3% after the healthcare giant’s strategy to use bankruptcy to resolve the multibillion-dollar litigation over claims its talc products cause cancer was rejected by a federal appeals court.
Declining issues outnumbered advancing ones on the NYSE by a 1.81-to-1 ratio; on Nasdaq, a 1.73-to-1 ratio favored decliners.
The S&P 500 posted five new 52-week highs and no new lows; the Nasdaq Composite recorded 51 new highs and 14 new lows.
“The group appears to be holding up well, but there is some trepidation due to the fact that investors are concerned about an economic slowdown and what that will do to demand,” said Robert Pavlik, senior portfolio manager at Dakota Wealth.
He said he is slightly overweight the energy sector, including shares of Chevron and Pioneer Natural Resources.
Economists and analysts in a Reuters survey forecast US crude would average US$84.84 per barrel in 2023, compared to an average price of US$94.33 last year, citing expectations of global economic weakness. US crude prices recently stood at around US$80 per barrel.
At the same time, many investors beefed up their holdings of energy stocks in 2022 after years of avoiding the sector, which had often underperformed the broader market amid concerns such as poor capital allocation by companies and uncertainties over the future of fossil fuel. The sector’s weight in the S&P 500 roughly doubled last year to 5.2 per cent.
However, that dynamic may be petering out, said Aaron Dunn, co-head of the value equity team at Eaton Vance.
“People have come back to energy in a big way,” he said. “We had that tailwind the last couple of years, which was that everyone was under-invested in energy. I don’t think that’s the case anymore.”
And while energy companies are expected to deliver strong quarterly reports over the coming weeks after a roaring 2022, those numbers may have set a high bar for this year.