“Exploring the Impact of Federal Reserve Interest Rate Decisions on Wall Street Markets”

NEW YORK (AP) – Stocks on Wall Street slipped again. The S&P 500 fell 0.6% on Monday, its second straight decline after a surprisingly strong jobs report dashed market hopes of a rate cut. The sharpest action was once again in the bond market, where expectations are mounting that the US Federal Reserve is firmly committed to keeping interest rates high for longer in a bid to fight inflation. It’s something the Fed has been talking about for a long time, but also something the market is stubbornly not fully believing. The Nasdaq Composite lost 1% and the Dow slipped 0.1%.

THIS IS A BREAKING NEWS UPDATE. AP’s earlier story follows below.

NEW YORK (AP) – Wall Street slipped Monday, adding to losses from late last week on concerns about higher interest rates and inflation.

The S&P 500 was down 0.7% in afternoon trade and on course for a second straight decline after a surprisingly strong US jobs report dashed market hopes of a rate cut. The Dow Jones Industrial Average fell 75 points, or 0.2%, to 33,850 at 3:07 p.m. Eastern time, while the Nasdaq Composite was 1% lower.

Some of the toughest action has again been seen in the bond market, where expectations are rising that the Federal Reserve will keep interest rates higher for longer to fight inflation. It’s something the Fed has been talking about for a long time, but also something the market is stubbornly not fully believing.

The two-year Treasury yield, which tends to follow expectations for the Fed, surged. It rose to 4.45% from 4.29% late Friday and just 4.10% the previous day. This is a significant move for the bond market. The 10-year yield, which helps set interest rates on mortgages and other major loans, rose to 3.63% from 3.52% late Friday.

Higher rates are intentionally slowing the economy in hopes of stifling demand for purchases that can fuel inflation. But they also increase the risk of a severe recession and hurt markets in the meantime.

“It’s too early to say how deep a recession we’re going to have,” said Terry Sandven, chief equity strategist at US Bank Wealth Management.

Friday’s staggering jobs report showed US employers added a third of a million more jobs than expected last month, despite higher interest rates. Normally, such strength would be good news for the markets. At least it should mean higher sales for many companies.

But there was also concern that an overly strong labor market would perpetuate inflationary pressures and force the Fed to keep interest rates high for longer. This is in direct contrast to market hopes that a slowdown in inflation could prompt the Fed to pause rate hikes soon and then cut rates later this year.

Such hopes sparked a major rally on Wall Street earlier in the year, and the S&P 500 is still up more than 7% for 2023 so far. Leading stocks were hit hardest last year by the Fed’s rapid rate hike to combat inflation. This includes technology stocks and others considered the riskiest or most expensive.

Investors had started the year extremely skeptical of such stocks, and as soon as they got a spark higher, momentum snowballed for them. Analysts have said the rebound was more about an improvement in sentiment than changes in the economy or other fundamentals.

Some of the positive sentiment was dampened by more signs of weaker demand in the technology sector and more cautious corporate spending overall. Stocks are currently in a “quick nowhere zone after a stellar January performance,” Sandven said, and he expects the choppy trading to continue until investors get more clarity on the economic path ahead.

Fed Chair Jerome Powell could provide more clues on where rates are headed Tuesday when he speaks at the Washington, DC Economic Club

In addition to Powell, this week markets are also waiting to hear from nearly 100 companies in the S&P 500 how much profit they have made over the last three months of 2022.

Earnings report season is halfway through, with about half of companies in the S&P 500 reporting and on course for a about 5% decline from last year’s levels, according to FactSet. That would be the first such drop since the summer of 2020, when the pandemic ravaged the global economy.

Tyson Foods fell 5% after reporting weaker earnings and sales than analysts had expected for the most recent quarter.

Dell Technologies fell 3% after it said it would cut about 5% of its workforce. The company’s vice chairman said in a note to employees that “market conditions continue to erode with an uncertain future.”

On the winning side was Idexx Laboratories, a company in the pet health industry. It rose 1.3% after reporting stronger-than-expected profit and sales.

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AP business writers Joe McDonald and Matt Ott contributed.

Stan Choe and Damian J. Troise, The Associated Press

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