The main U.S. stock indexes fell on Monday, retreating from Friday’s gains that followed comments from Federal Reserve Chair Jerome Powell, who suggested that a September rate cut appeared likely, though not guaranteed, while the dollar strengthened.
The dollar had weakened last week following Powell’s remarks at the Fed’s annual symposium in Jackson Hole, Wyoming. By contrast, U.S. Treasury yields rose on Monday.
Major financial institutions, including Barclays, BNP Paribas, and Deutsche Bank, expect the Federal Reserve to cut interest rates by 25 basis points in September. The CME Group’s FedWatch tool also shows futures traders pricing in an 84% probability of a cut.
Peter Cardillo, chief market economist at Spartan Capital Securities in New York, said: There was a lot of enthusiasm on Friday because of Powell’s hints at a possible rate cut. The market may have overreacted to those comments. He added: I believe we will see a cut, but not more than 25 basis points, and much will depend on Friday’s upcoming inflation data.
The August data expected before the Fed’s September 16–17 meeting could still influence monetary policy. The Personal Consumption Expenditures (PCE) price index, due Friday, is the Fed’s preferred inflation measure.
Meanwhile, stronger than expected U.S. producer price data last month raised some doubts about the certainty of a rate cut. Investors are also awaiting earnings results from Nvidia, the AI chipmaker, scheduled for Wednesday.
The Dow Jones Industrial Average closed down 349.27 points, or 0.77%, at 45,282.47. The S&P 500 fell 27.59 points, or 0.43%, to 6,439.32, while the Nasdaq Composite dropped 47.24 points, or 0.22%, to 21,449.29.
Nvidia is among the last S&P 500 companies to report its quarterly results. Overall, earnings so far have beaten expectations and provided support to the markets. According to LSEG data, estimated annual earnings growth for S&P 500 companies reached 12.9% as of Friday, compared with just 5.8% on July 1.
The MSCI world equity index fell 2.33 points, or 0.24%, to 952.96, while Europe’s STOXX 600 declined 0.44%. U.S. Treasury yields also climbed as traders prepared for this week’s auctions of short- and medium-term debt. The 10-year Treasury yield rose 1.9 basis points to 4.277%.
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