Pedestrians pass the New York Stock Exchange, Thursday, May 5, 2022, in the Manhattan borough of New York. (AP Photo/John Minchillo, File)
By Stan Choe
Stocks sank Monday as Wall Street prepped for a week full of potentially market-moving events, from decisions on interest rates around the world to earnings reports from the biggest U.S. companies.
The S&P 500 dropped 1.3%, giving back some of the gains that had carried it last week to its highest level since early December. The Dow Jones Industrial Average fell 260 points, or 0.8%, while the Nasdaq composite sank 2%.
Markets have been veering recently on worries that the economy and corporate profits may be set for a steep drop-off, along with competing hopes that cooling inflation will get the Federal Reserve to take it easier on interest rates.
The central bank’s next decision on rates is coming Wednesday, and most investors expect it to announce an increase of just 0.25 percentage points. That would be the smallest increase since March, following a spate of hikes of 0.75 points and then a 0.50-point increase, and it would mean less added pressure on the economy.
Higher rates combat inflation by intentionally slowing the economy, while also dragging down on prices for investments. Inflation has been cooling since the summer amid last year's blizzard of rate hikes, but the economy has also been showing signs of concern.
The big question is whether Fed Chair Jerome Powell on Wednesday afternoon will give markets what they want to hear — hints that rate hikes will end soon and rate cuts may even be possible late this year — or stick to the Fed’s mantra that it plans to keep rates higher for longer, even if a modest recession hits.
“I think that they have no intention of cutting rates this year,” said Sam Stovall, chief investment strategist at CFRA Research, adding that the Fed waits an average of roughly nine months after its last rate hike before cutting.
“They’ll reiterate that they don’t want to make the mistakes of the 1970s," he said, "but I think in the back of their minds, they’re going to say no matter which inflationary indicator you look at, they’re all heading in a stairstep downward pattern.”
Central banks for Europe and for the United Kingdom are also set to announce their latest increases for rates this week.
Beyond interest rates, more than 100 companies in the S&P 500 are scheduled this week to report how much profit they made in the last three months of 2022. Among them are tech heavyweights Apple, Amazon, and Google’s parent company. Because these companies are three of the four biggest on Wall Street by market value, their stock movements carry much more sway on the S&P 500 than others.
Apple's 2% drop Monday, for example, was the heaviest weight on the S&P 500.
The only other stock that rivals them in size, Microsoft, shook Wall Street last week when it gave forecasts for upcoming results that raised worries about a slowdown in corporate spending on tech. Its stock fell 2.2% Monday.
All told the S&P 500 fell 52.79 points to 4,017.77. The Dow lost 260.99 to 33,717.09, and the Nasdaq fell 227.90 to 11,393.81.
Strategists at Morgan Stanley led by Michael Wilson warn tougher times may be ahead.
“The reality is that earnings are proving to be even worse than feared based on the data, especially as it relates to margins,” they wrote in a report. “Secondly, investors seem to have forgotten the cardinal rule of ‘Don’t Fight the Fed’. Perhaps this week will serve as a reminder.”
Later this week, the U.S. government will also give its latest monthly update on the job market. Hiring has remained resilient across the broad economy, even as housing and other corners weaken sharply under the weight of all the Fed’s rate hikes from last year.
Some big tech companies have announced high-profile layoffs after acknowledging they misread their boom coming out of the pandemic. But job cuts may be starting to spread to other areas of the economy. Hasbro and 3M last week announced layoffs.
All told, economists expect Friday’s report to show that U.S. employers added 187,500 more jobs than they cut during January. That would be a slowdown from December’s hiring of 223,000.
The yield on the 10-year Treasury rose to 3.53% from 3.51% late Friday. The two-year yield, which tends to move more on expectations of Fed actions, rose to 4.25% from 4.20%.
___
AP Business Writers Damian J. Troise, Elaine Kurtenbach and Matt Ott contributed.
Business communication platform Slack, recently released its fifth wave of results from its global workplace survey from its Future Forum consortium, showing that the workforce has already moved to a split between working from home and going to the office. “We are now officially in the hybrid era of work,” Slack Future Forum VP Sheela Subramanian said when discussing the findings. "Hybrid is a work model where people can come into the office as well as work remotely, and what we're seeing is that the majority of knowledge workers are now in this arrangement — and that number is set to grow."
Legal cannabis businesses are having a hard time surviving in California with the high cost of doing business and a still-thriving illicit market. In response, nonprofit Supernova Women, founded by women of color, is advocating on behalf of Black and brown shareholders in the cannabis industry. Amber Senter, co-founder, executive director, and chairman of the organization, spoke with Cheddar News about calling for changes in the Golden State's taxation system for legal marijuana. "We're really leaning on the legislators now to support the industry and make sure that this industry, in particular craft cannabis, can survive," said Senter.
After being among the hardest-hit industries by the pandemic, restaurants are still having a hard time staying afloat, with owners claiming that business is worse now due to closures from staff shortages and customer decline than it was three months ago. Mike Whatley, vice president of state affairs and grassroots advocacy for the National Restaurant Association, spoke to Cheddar News about how the sector is reaching out to lawmakers for help. "Working with Senators Wicker, Sinema, and a whole host of bipartisan leaders, we're trying to get the Restaurant Revitalization Fund replenished," Whatley said.
Alex Soojung-Kim Pang, founder of Strategy + Rest,
joins Cheddar News to discuss UK's pilot four-day workweek and its impact on workers' mental health.
Ed Gaussen, co-founder and CEO of Mantra Health, and Matt Kennedy, co-founder and COO of Mantra Health, joined Cheddar News to discuss the digital mental health startup's latest funding round and plans for the future.
Actor and singer Chrissy Metz, who stars as Kate Pearson in "This Is Us," is partnering with Capital One Auto Navigator to share her story of purchasing her first car to help make car buying easier for others. "For me, I know a car was so important because of course it took me to the auditions to get me to the place I have today," she said. "But it also means empowerment and freedom and accessibility, and I think everybody is deserving and in need of that." Metz also discussed the final season of her hit show, noting that expectations for the finale "will probably be exceeded."
Tire manufacturer Michelin is partnering with the popular video game "The Sims FreePlay" in order to meet teens where they are to promote driving safety. Michelin North America Chairman and President Alexis Garcin joined Cheddar News to discuss how the #GoldenGauge program integrates with the game. "If you're a gamer yourself or your kids, then while you're driving and moving on the application, you will find a Michelin billboard, and if you engage with that billboard, then you will get some advice about how tires are critical for your safety on the road," Garcin explained. *Updated with the full title of 'The Sims FreePlay' and a typo fix in the name of Alexis Garcin.*
The video game industry has come a long way from the first commercialized 3D video game in 1980, but it still has a long way to go. Video game creators have recently been called out for not having realistic Black hairstyles in their games and graphic artists are now taking matters into their own hands by creating The Open Source Afro Hair Library. Jovan Wilson, 3D artist and resident for The Open Source Afro Hair Library, joined All Hands to discuss.
After reporting record deliveries in Q4, expectations are high for Tesla's Q4 earnings call. Garrett Nelson, senior analyst and VP of equity research at CFRA, joined Cheddar News to discuss predictions about the report and what he sees as the emphasis on the EV maker's future. "We think the focal point of the release is really going to be on their guidance for 2022, the timing of the ramp-up of their new factories in Texas and Germany in the face of these chip shortages and supply chain issues, and also next steps in its long-term growth plans," he noted.
