S&P falls from record levels as rates spike on Fed commentary

Note: Figures recorded at 7:40am AEDT. Updated figures and a video recording will be available at 9am AEDT.

Stocks fell Monday as Treasury yields spiked higher on concerns that the Federal Reserve may not cut rates as much as expected. Lacklustre results from McDonald’s also dampened investor sentiment.

The Dow Jones Industrial Average dropped 230 points, or 0.6%. The S&P 500 slipped 0.2%, along with the Nasdaq Composite. Monday’s action comes after the S&P 500 reached a record high last week, powered by sharp moves higher in Big Tech.

The yield on the 10-year Treasury note was last up more than 13 basis points to 4.168% as investors assessed a fresh batch of strong economic data that suggested rates may stay elevated for longer than anticipated. The benchmark yield traded around 3.81% last week.

Fed Chair Jerome Powell on Sunday reiterated comments made after last week’s January policy meeting, suggesting that a rate cut in March was unlikely. Expectations for cuts have eased since the remarks, with the probability of a cut next month last at 14.5%, according to CME Group’s FedWatch Tool.

Earnings season stretched on, with McDonald’s slipping 3.8% after posting a mixed quarter. The results heightened concerns about earnings from companies outside of the technology behemoths and whether they can deliver the rest of the season.

Elsewhere, Boeing slumped nearly 2% on more 737 Max woes. Tesla also dragged the broader market, losing more than 3% as worries over rising competition and persistent pricing pressures for the EV giant lingered.

Small-cap stocks, as represented by the Russell 2000, exhibited underperformance in Monday's trading session, experiencing a 1.4% decline. This underperformance is part of a broader trend, with small-cap stocks, as measured by the Russell 2000, having declined by over 4% since the beginning of 2024, in contrast to the S&P 500, which has seen a 3% increase during the same period.

In commodity-related news, analysts anticipate a rise in rare earth prices in the near future, driven by increased demand from electric vehicles and wind power. Additionally, China's output quotas are expected to grow at a slower pace this year, following a substantial 21.4% increase in 2023, as China plays a dominant role in both rare earth mining and refined output, contributing to the decline in rare earth prices observed in 2023 due to heightened production and tepid demand growth.

Figures around the globe

European markets closed lower. London’s FTSE fell 0.04 per cent, Frankfurt lost 0.08 per cent, and Paris closed 0.03 per cent lower.

Turning to Asian markets, Tokyo’s Nikkei added 0.54 per cent, Hong Kong’s Hang Seng fell 0.15 per cent and China’s Shanghai Composite fell 1.02 per cent lower.

Yesterday, the Australian share market closed 0.96 per cent lower at 7,625.85

Sources: Bloomberg, FactSet, IRESS, TradingView, UBS, Bourse Data, Trading Economics, CoinMarketCap.

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