Market Jitters and Fed Watch: U.S. stocks took a step back on Monday, breaking last week’s positive momentum, as investors approached the upcoming employment data with caution. This crucial data could reshape expectations about whether the Federal Reserve will initiate interest rate cuts early next year.
The S&P 500 saw a decline, weighed down by major players like Microsoft, Apple, Nvidia, and Amazon, each slipping over 1%. The pressure came from an uptick in U.S. Treasury yields, making stocks’ returns less appealing. Despite the dip, the S&P 500 had a strong close on Friday, hitting its highest point of the year. Fed Chair Jerome Powell’s remarks acknowledging the need for careful progress in light of signs of economic softening fueled expectations that the Fed has concluded its rate hikes.
On a positive note, small-cap stocks experienced a rise, with the Russell 2000 surging about 1%, bringing its year-to-date gain to almost 7%. According to Tom Martin, a senior portfolio manager at GLOBALT Investments, there’s some turbulence in the market currently, but it may lack significant meaning.
The S&P 500 closed down 0.54% at 4,569.78 points. The Nasdaq slipped 0.84% to 14,185.49 points, while the Dow Jones Industrial Average dipped 0.11% to 36,204.44 points. Volume on U.S. exchanges was relatively high, reaching 12.7 billion shares traded.
Uber Technologies enjoyed a 2.2% rally after announcing its inclusion in the S&P 500 effective December 18. Meanwhile, Alaska Air Group faced a 14% drop as it revealed plans to acquire Hawaiian Holdings for $1.9 billion, including debt. Hawaiian Holdings’ shares nearly tripled in value, contributing to the Russell index’s positive movement.
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The spotlight this week will be on the November jobs report, offering insights into the Fed’s potential interest rate trajectory and the likelihood of a “soft landing.” Traders anticipate the Fed will maintain rates in the upcoming meeting, with interest rate futures suggesting a 58% chance of rate cuts by March 2024.
Despite the positive market performance in 2023, some analysts caution against prematurely pricing in lower interest rates. Additionally, concerns about an escalation of the Israel-Gaza conflict following an attack on commercial vessels in the southern Red Sea added to the market’s downward pressure.
Cryptocurrency firms, including Coinbase Global, Riot Platforms, and Marathon Digital, saw gains between 5% and 9% as bitcoin crossed $40,000 for the first time this year.
In summary, the market experienced a pullback, influenced by cautious sentiment ahead of critical economic data and ongoing geopolitical concerns. The focus remains on deciphering the Fed’s future moves and navigating potential shifts in market dynamics.