Dow finishes lower as Powell's comments dampen early rate cut hopes

4:10pm: Busy week ahead

Markets closed lower on Monday following Federal Reserve Chair Jerome Powell's tempered outlook on the likelihood of an early interest rate cut, which heightened the importance of a busy week of corporate earnings to sustain the recent market rally.

The S&P 500 finished the session with a 0.3% decrease, indicating a modest retreat from the benchmark's recent record-breaking performance. The Dow Jones recorded a loss of approximately 0.7%, and the tech-focused Nasdaq dropped by 0.2%.

12:00pm: Stocks extend losses after strong economic data

Stocks extended losses after stronger-than-expected services sector data and as the Fed pushed back on rate cut hopes.

At midday, the Dow Jones Industrial Average was down 0.9% at 38,290.19, the S&P 500 was down 0.5% at 4,932.79 and the Nasdaq Composite was down 0.6% at 15,538.00.

The services economy made a strong start to 2024, two business surveys showed Monday.

The seasonally adjusted final S&P Global US Services PMI Business Activity Index posted 52.5 in January, up from 51.4 in December, but slightly lower than the earlier released 'flash' estimate of 52.9.

S&P said business activity expanded at the fastest pace since June 2023.

Elsewhere, The Institute of Supply Management said economic activity in the services sector expanded in January for the 13th consecutive month, beating market expectations. 

The services PMI registered 53.4% in the month, accelerating from 50.5% in December. December's figure was revised downwards from 50.6%.

"Following on the heels of the strong labour market data, the rebound in the ISM services index to a four-month high of 53.4 in January, from 50.5, is another signal that the US economy remains impervious to the significant tightening in monetary policy over the last couple of year," said Paul Ashworth at Capital Economics.

Stocks on the move include Estee Lauder, up 14%, after it said it will cut up to 5% of its workforce as part of a much-anticipated restructuring plan to boost profit after several quarters of decline.

9:45am: Stocks retreat as rate cut hopes fade further

Stocks in New York opened lower after hopes for multiple cuts in interest rates were dashed.

Shortly after the opening bell, the Dow Jones Industrial Average was down 0.4% at 38,506.99, the S&P 500 was down 0.2% at 4,947.56 and the Nasdaq Composite was down 0.3% at 15,589.38. 

Neel Kashkari, president of the Minneapolis Federal Reserve, said policymakers should not rush to cut interest rates as borrowing conditions are more relaxed than many think.

Kashkari, who is on the Federal Reserve’s policymaking committee said real rates had not risen as steeply as the recent fall in inflation might suggest. 

Yields in Treasury markets signalled conditions “may not be as tight as we would have assumed given the low neutral rate environment . . . before the pandemic”, he said in an essay on the regional Fed’s website.

“It is possible . . . that the policy stance that represents neutral has increased. [This gives policymakers] time to assess upcoming economic data” before cutting, he said.

The comments followed an interview on Sunday in which Fed Chair Jerome suggested three rate cuts were likely in 2024 compared to the six markets has been pricing in.

Stocks on the move include McDonalds, down 3.0% after it said the war in Gaza has hurt business in the Middle East as it reported weaker than expected sales at its existing restaurants.

7:00am: Stocks seen flat after Powell dents rate cut hopes again

Stocks in New York are expected to make a mixed start to the week after the chair of the Federal Reserve played down hopes for significant rate cuts in 2024.

In pre-market trading, futures for the Dow Jones Industrial Average were up 0.1%, while those for the S&P 500 eased 0.1% and contracts for the Nasdaq 100 futures declined 0.2%.

The Federal Reserve’s rate-setters still expect to make about three quarter-point rate cuts this year, its chair Jay Powell said in an interview that aired on Sunday. 

Markets had priced in as much as 6 rate cuts this year but these hopes have steadily been pared back, after last week’s Fed meeting, and  a series of robust economic data, culminating in Friday’s blow-out jobs report.

The comments pushed yields on rate-sensitive two-year US Treasuries up 0.09 percentage points to 4.46%.