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Nasdaq books worst skid in 5 weeks, stocks slump ahead of Fed rate decision, tech earnings deluge

MarketWatch logo MarketWatch 1/30/2023 Joy Wiltermuth
© Michael M. Santiago/Getty Images

Stocks finished near session lows Monday, as a big week that features a Federal Reserve interest-rate decision, a jobs report and several key technology-sector earnings reports got under way.

What happened
  • The Dow Jones Industrial Average shed 260.99 points, or 0.8%, ending at 33,717.09, which snapped a 6-session win streak.
  • The S&P 500 index declined 52.79 points, or 1.3%, closing at 4,017.77, near the session low of 4,015.55.
  • The Nasdaq Composite dropped 227.90 points, or 2%, finishing at 11,393.81, its worst daily percentage drop since Dec. 22, according to Dow Jones Market Data.

Stocks rose last week, with the S&P 500 and Nasdaq ending Friday at highs for the new year. The S&P 500 has rallied 4.6% in January, and riskier plays such as the ARK Innovation ETF have done even better, with Cathie Wood’s flagship fund up more than 23% in 2023.

What drove markets

The Nasdaq Composite led a jittery stock market lower on Monday, as a big week for both corporate earnings and macroeconomic data got under way.

“What we are seeing here is investors getting cautious before the Fed announcement on Wednesday, and as major corporations report results tomorrow and the rest of the week,” said Peter Cardillo, chief market economist at Spartan Capital Securities, in a phone interview.

The Federal Reserve interest-rate decision will be coming Wednesday and nonfarm payrolls are set for release on Friday. The Fed is widely expected to deliver a 25-basis-point rate increase, downshifting from the outsize 50- and 75-basis-point increases seen last year. The Fed has signaled rates will top 5% and stay there, while markets have priced in cuts for the second half of 2023, setting up a potential clash.

Cardillo thinks the Fed will surprise with an increase of 50 basis points, but “hint at a tightening cycle” that is nearing an end, potentially as soon as March. Should that unfold, Cardillo said he expects both stocks and bonds to rally, paving the way for the S&P 500 to move up to 4,200.

Read: Four ways Powell could tell markets the Fed isn’t ready to pivot

“Monetary policy works with a lag, and we will likely be feeling the influence of higher rates of 2022 well into 2023,” said Matthew Miskin, John Hancock Investment Management’s co-chief investment strategist, in emailed commentary on Monday.

Miskin also warned that stocks have advanced to start the year, even through earnings estimates for the S&P 500 have been falling, causing the forward price-to- earnings ratio to reach its highest since August at 17.93x. “We see this valuation as a potential headwind and either looking for cheaper equity asset classes, or fixed income options, as attractive alternatives.”

Read: The Fed and the stock market are on a collision course this week. What’s at stake.

Tech giants Apple Inc. Alphabet Inc. and Inc. highlight a huge slate of corporate earnings reports this week. Tech stocks in particular have rallied this month as bond yields have eased.

Also read: Could Big Tech layoffs keep growing? Apple, Amazon, Facebook and Google may give hints in biggest week of earnings.

The benchmark 10-year Treasury rate edged higher, above 3.5% on Monday, but off the roughly 4.2% high in October.

“Major central banks are set to hike policy rates again this week and keep them higher, counter to market views for cuts this year,” a BlackRock Investment Institute team led by Wei Li, global chief investment strategist, said in a Monday client note. “We see this as disconnect resolving and favoring higher rates.”

Companies in focus

–Steve Goldstein contributed reporting to this article.


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