The Dow plunged more than 500 points on Monday while Treasury yields rose, as traders tamped down bets for Federal Reserve interest-rate easing. Uncertainty around the Middle East conflict added to worries ahead of quarterly earnings season and fresh economic data.
in afternoon trading, the Dow Jones Industrial Average dropped 432 points, or 1%, to 41,920. The blue-chip index closed at record of 42,352.75 on Friday.
The S&P 500 and the Nasdaq both dropped about 1%.
After Friday’s stronger-than-expected jobs report, traders pulled back from bets for a 50-basis-point rate cut in November. They were pricing in an 86% chance of a 25-basis-point cut and a roughly 14% chance the central bank would not cut rates at all, according to the CME’s FedWatch tool.
The change in rate-cut expectations caused US Treasury yields to rally, with the yield on benchmark 10-year notes exceeding 4% for the first time in two months.
Besides next month’s Fed meeting, investors are waiting for the Consumer Price Index inflation reading for September and the kickoff of third-quarter earnings season with reports from banks, both due this week.
“We think this is short-term nervousness that will be healed over the next five days when the CPI number is released and the bank earnings,” said James Demmert, chief investment officer at Main Street Research.
Demmert noted the intensifying Middle East conflict as a concern for US investors who are worried about the war’s economic impact, including rising oil prices.
Investors continue to fret about how Israel would respond to Iran’s missile strikes. On Monday, Lebanon’s armed group Hezbollah fired rockets at Israel’s city of Haifa while Israeli forces looked poised to expand ground raids into south Lebanon.
The CBOE Volatility index, Wall Street’s fear gauge, hit its highest level in a month.
The S&P’s biggest drag from a single stock was from Amazon, which fell almost 3% after a Wells Fargo downgrade.
Shares of Pfizer rose 2.4% after a report that activist investor Starboard Value has taken a roughly $1-billion stake in the drugmaker.
Air Products and Chemicals was one of the top S&P 500 gainers, rising 8.8% on a report that activist hedge fund Mantle Ridge has built a position in the company.
Goldman Sachs raised its 2024 year-end S&P 500 target to 6,000 from 5,600, and lowered its odds of a US recession to 15% from 20%.
