Monday witnessed a turbulent ride in the stock market, as two major factors sent shockwaves through the financial landscape.
Stocks took a plunge as Treasury yields surged, triggering concerns that the Federal Reserve might not cut rates as much as initially anticipated.
The Dow Jones Industrial Average bore the brunt, witnessing a significant 370-point drop, translating to nearly a 1% decrease.
The previous week had seen the S&P 500 reaching unprecedented heights, primarily propelled by robust performances in the Big Tech sector. However, that momentum seemed to wane abruptly.
The epicentre of the market quake lay in the surge of the 10-year Treasury note yield by more than 13 basis points to 4.168%.
Investors grappled with the implications of this unexpected spike, particularly as it followed a benchmark yield of around 3.81% just last week.
As investors tried to make sense of the situation, a fresh wave of strong economic data surfaced, hinting that interest rates might remain elevated for a longer duration than previously expected.
Federal Reserve Chair Jerome Powell added fuel to the fire with comments made after the January policy meeting, suggesting that a rate cut in March was unlikely.
The market’s expectation for a March cut plummeted to just 14.5%, according to CME Group’s FedWatch Tool.
Keith Lerner, co-chief investment officer at Truist, remarked on the ongoing recalibration of expectations surrounding the Fed’s future moves.
The tension between a robust economy and the uncertainty of the Fed’s actions seemed to create what Lerner termed “reset days” in the market.
Adding to the market’s woes, the ongoing earnings season presented its own set of challenges.
McDonald’s, a significant player in the market, reported lacklustre results, causing a 4% dip in its stock.
The initial surge in the S&P 500 had been fueled by remarkable gains in Big Tech. However, the shine appeared to wear off as the broader market experienced a downturn.
Boeing faced its share of troubles, slumping by more than 1% due to renewed concerns surrounding the 737 Max.
Tesla, a heavyweight in the electric vehicle sector, dragged down the broader market with a loss exceeding 5%. Lingering worries about rising competition and pricing pressures contributed to Tesla’s decline.
As the market navigates these choppy waters, the interplay between a robust economy and the Federal Reserve’s decisions continues to fuel uncertainty.
Attention is not solely focused on the tech behemoths, but also on how companies outside the technology sector will fare in the remainder of the earnings season.