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Stocks lower as rate cut expectations drop

Wall Street

The US Fed has hiked the federal funds rate to its highest level since 2001 to bring down high inflation

Stocks slid Monday following the latest signal that the US economy remains strong, which could delay the cuts to interest rates that Wall Street wants.

The S&P 500 dropped 15.80 points, or 0.3%, to 4,942.81 from the all-time high set Friday. The Dow Jones Industrial Average shed 274.30, or 0.7%, to 38,380.12, and the Nasdaq composite dropped 31.28, or 0.2%, to 15,597.68.

Earnings season is near its midpoint, and roughly half the firms in the S&P 500 have reported their latest results, including many of the market’s most influential. Estee Lauder climbed 12% after it reported better revenue and profit than analysts expected. McDonald’s, meanwhile, dropped 3.7% despite reporting stronger profit than expected. Its revenue for the latest quarter fell just short of estimates.

Companies that have been missing analysts’ estimates for earnings this reporting season have been seeing their stocks get punished even more than usual, per strategists at BoA.

Stocks broadly felt pressure from another rise for yields in the bond market. They increased as traders on Wall Street delayed their expectations for when the Fed will begin cutting its main interest rate.

The US Fed has hiked the federal funds rate to its highest level since 2001 to bring down high inflation.

Fed Chair Jerome Powell said again in an interview broadcast Sunday that the Fed may cut interest rates three times this year as inflation has been cooling. But he also indicated again in the interview on “60 Minutes” that the Fed is unlikely to begin in March, as many traders had earlier hoped.

Following the interview, traders pushed out some bets for the cuts to begin in June instead of May, per data from CME Group.

At Goldman Sachs, economist David Mericle is still forecasting cuts to begin in May. Following Sunday’s interview, though, he sees a greater possibility of rate cuts beginning later than that and happening in a steeper fashion.

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