Fed meeting, Apple earnings, Trump speech, jobs report on tap
All major U.S. benchmarks closed lower on Monday, with the Dow and the S&P 500 having their worst day this year, as the appetite for equities was dampened by a pickup in borrowing costs.
A retreat for the main indexes comes as the yield on the benchmark 10-year Treasury TMUBMUSD10Y, +0.66% rose during the session to its highest level since April 2014, while the dollar gained some upward traction, after hovering around a three-year low last week. Rising yields can weigh on demand for assets considered risky, like stocks, particularly as yields for bonds climb above those for equities.
Looking ahead, investors await a key speech by President Donald Trump on Tuesday, an updated policy statement from the Federal Reserve on Wednesday, a monthly jobs report on Friday and corporate quarterly results from a batch of technology heavyweights throughout the week.
How did the benchmarks fare?
The Dow Jones Industrial Average DJIA, -0.67% fell 177.23 points, or 0.7%, to 26,439.48, pressured by sharp declines in blue-chip components Caterpillar Inc. CAT, -2.68% and Apple Inc. AAPL, -2.07% .
The broad-market S&P 500 index SPX, -0.67% slipped 19.34 points, or 0.7%, to 2,853.53, as so-called bond proxies, real estate, utility and telecommunication stocks fell sharply. Those sectors tend to see selling pressure as bond yields rise, luring investors hunting for richer yields.
The Nasdaq Composite Index COMP, -0.52% declined 39.27 points, or 0.5%, to 7,466.51, its second-worst daily drop this year.
All three major indexes closed at record levels on Friday, with the Dow Jones Industrial Average soaring 223.92 points, or 0.9%, to 26,616.71. The S&P 500 index climbed 1.2% to 2,872.87.
What were the drivers for the markets?
After last week’s gains, traders appeared to be pausing and awaiting a number of potentially market-moving events over the next several days.
Rising yields also complicate demand for equities, with the aggregate yields for the Dow at 2.1%, and 1.8% for the S&P 500, compared with the 10-year Treasury offering a yield at 2.69%, while the short-term two-year Treasury note yield TMUBMUSD02Y, +0.39% was at 2.13%. Bond prices and yields move in the opposite direction.
Consumer spending climbed 0.4% in December, capping off the biggest increase in household buying since 2011, below economists’ forecasts polled by MarketWatch for a 0.5% increase.
Meanwhile, the PCE index, or personal-consumption expenditures index, the Federal Reserve’s preferred inflation gauge, edged up 0.1% in December. The closely followed “core” rate that strips out food and energy rose 0.2%. The rate of inflation over the past year slipped to 1.7% from 1.8%, however. The core rate, stripping out volatile food and energy prices, was flat at 1.5%.
Wall Street has been watching sluggish inflation for signs of normalization.
The Fed will announce the outcome of its two-day meeting, the last for departing Chairwoman Janet Yellen, on Wednesday. The market isn’t counting on an interest-rate hike this month, but has penciled one in for March.
The State of the Union address from Trump will command attention Tuesday, as investors look out for any more rhetoric on trade, after he last week announced tariffs on Chinese solar panels and South Korean washing machines. In an interview Sunday, Trump hinted at retaliation against the European Union over a “very unfair” trade policy with the U.S.
On the earnings front, 125 S&P 500 companies are expected to report this week, including Apple AAPL, -2.07% , Google-parent Alphabet Inc. GOOGL, -0.09% and Amazon.com Inc. AMZN, +1.11% on Thursday, as well as Facebook Inc. FB, -2.12% and Microsoft Corp. MSFT, -0.15% on Wednesday.
See also: Apple earnings: Forget taxes and batteries, the $1,000 iPhone X remains the story
Plus: Earnings previews for Facebook, Alibaba, AMD and McDonald’s
What were strategists saying?
“The rebound in the dollar and of course with the 10-year yield at 2.71[%] that’s a little bit of a challenge for the market here, especially if we continue to rise,” said Peter Cardillo, chief market economist at First Standard Financial.
“If you annualized returns this month for the year, we’d have a 60% for stocks and that seems implausible. It’s just inconceivable,” said Diane Jaffee, senior portfolio manager at TCW. Both the S&P 500 and Dow are on track for monthly gains of around 7%.
Jaffee said a pullback should be “welcomed,” with investors “realizing that we are not going to have a 60% year, in but there are some good things in the stock market.”
Still, the stock market’s breadth remains healthy, with the percentage of S&P 500 stocks trading above their 200-day moving average at the highest since March 2017, according to Jonathan Krinsky, chief market technician at MKM Partners.
MKM Partners
Which stocks were key movers?
Aerospace giant Lockheed Martin Corp. LMT, +1.89% reported profit and revenue that were better than expected, helping push its shares up by 1.9%.
Avon Products Inc. AVP, -0.82% slid 0.8% after news that a group of activist investors is trying to push the seller of beauty products to find a buyer.
Dr Pepper Snapple Group Inc. DPS, +22.39% soared 22% after a merger deal with Keurig Green Mountain was announced early Monday.
Apple shares fell 2.1% on a Nikkei Asia Review report that the company plans to cut its iPhone X production target for the March quarter, to half of what was expected a month ago.
Shares of Wynn Resorts Ltd. WYNN, -9.32% continued to suffer, falling 9.3%, after a report from The Wall Street Journal on Friday alleged that founder Steve Wynn had a history of sexual misconduct at the casino company.
VMware Inc.’s VMW, -16.63% stock skidded 17% on after CNBC reported that privately held Dell Inc. could seek to merge with the software company, which it currently holds a stake valued at about $50 billion.
Telecom companies such as AT&T Inc. T, -1.48% , Verizon Inc. VZ, -1.08% and T-Mobile USA Inc. TMUS, -1.04% all fell 1% or more following reports that the Trump administration wants to nationalize next-generation, high-speech 5G wireless networks to prevent China spying on U.S. mobile traffic.
What did other assets do?
After tumbling 1.7% last week, the ICE U.S. Dollar Index DXY, +0.05% rose 0.3%, while gold futures GCG8, -0.19% settled lower on the buck’s strength and oil futures CLH8, -0.35% fell.
European stocks SXXP, -0.19% dropped across the board except for the FTSE, while Asian markets closed mixed.
Bitcoin BTCUSD, -2.37% prices weakened but remained above $11,000 to kick off the week.
