Wall Street closed with heavy losses at the beginning of a key week for the US economy

Brokers on the New York Stock Exchange (REUTERS/Andrew Kelly)
Brokers on the New York Stock Exchange (REUTERS/Andrew Kelly)

Stocks fell on Wall Street on Monday, ahead of an eventful week that could influence the market, from decisions on interest rates all over the world until earnings reports from the largest US companies.

The S&P 500 It was down 1.3%, giving up some of its gains from last week, when it hit its highest level since early December. The Industrial Average Dow Jones lost 0.7% and the nasdaq composite lost 2 percent.

Markets have drifted lately on concerns that the economy and corporate earnings may be about to take a hit. strong falltogether with the hope that the cooling of the inflation get the Federal Reserve to ease interest rates.

Traders work on the floor of the New York Stock Exchange (REUTERS/Andrew Kelly)
Traders work on the floor of the New York Stock Exchange (REUTERS/Andrew Kelly)

The next central bank decision on rates will be the Wednesdayand most investors expect him to announce a rise of only 0.25 percentage points. It would be the smallest increase since marchafter a streak of increases of 0.75 points and after 0.50 points, and it would mean less added pressure on the economy.

Higher rates combat inflation by intentionally slowing down the economy, while dragging down investment prices. Inflation has been cooling since the summer amid last year’s blizzard of rate hikes, but the economy has also given signs of concern.

The big question is whether Fed Chairman Jerome Powell will give markets what they want to hear on Wednesday afternoon –hints that rate hikes will end soon and that there might even be rate cuts later this year– or stick to the Fed’s mantra that it plans to keep rates higher for longer, even if a modest recession.

“I think they have no intention of cutting rates this year,” says Sam Stovall, chief investment strategist at CFRA Research, adding that the Fed waits on average about nine months after its last rate hike before cutting rates.

“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 that no matter which inflation indicator you look at, they’re all heading in a stepwise downward pattern.”

The central banks of Europe and the United Kingdom will also announce their latest rate hikes this week.

FILE PHOTO: The Wall Street entrance to the New York Stock Exchange (REUTERS/Brendan McDermid)
FILE PHOTO: The Wall Street entrance to the New York Stock Exchange (REUTERS/Brendan McDermid)

Beyond interest rates, more than 100 S&P 500 companies are scheduled to report their earnings in the last three months of 2022 this week. Among them are the technological heavyweights Manzana, Amazon and the matrix of Google. Since these companies are three of the four largest on Wall Street by market value, their stock movements have much more influence on the S&P 500 than others.

The only other value that rivals them in size, Microsoftrocked Wall Street last week when he gave forecasts for upcoming earnings that raised concerns about a slowdown in business spending on technology. Its shares fell 2.2% on Monday.

Companies appear to be on track to post slightly lower-than-expected earnings by the end of 2022, according to a report by BofA Global Research. That’s an indication that the strong January enjoyed by the S&P 500 so far is due more to improvement sentiment on Wall Street than to better fundamentals, wrote strategist Savita Subramanian.

Morgan Stanley strategists, led by Michael Wilson, warn that more difficult times may lie ahead.

“The reality is that the benefits are turning out to be even worse than feared based on the data, especially when it comes to margins,” they wrote in a report. “Second, investors seem to have forgotten the cardinal rule of ‘Don’t fight the Fed.’ Maybe this week will serve as a reminder.”

Later this week, the US government will also release its latest monthly update on the working market. Hiring has remained remarkably resilient across the economy, even as housing and other corners weaken sharply under the weight of all the Fed rate hikes in the past year.

Some big tech companies have announced layoffs at a high level after acknowledging that they misinterpreted their rise after the pandemic. But the job cuts may be starting to spill over into other areas of the economy. Hasbro and 3M announced layoffs last week.

All told, economists expect Friday’s report to show that US businessmen added 187,500 jobs more than they cut back in January. This would mean a slowdown with respect to the 223,000 December hires.

The profitability of 10 year treasury rose to 3.54% from 3.51% on Friday. The two-year yield, which tends to move more based on expectations for Fed actions, rose to 4.25% from 4.20%.

(With information from AP)

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