Dow ends over 270 points lower as Powell signals no rush to cut interest rates

What happened

• The Dow Jones Industrial Average
  DJIA
  fell 274.30 points, or 0.7%, to end at 38380.12, according to closing data from Dow Jones Market Data.

• The S&P 500
  SPX
  declined 15.80 points, or 0.3%, to finish at 4942.81.

• The Nasdaq Composite
  COMP
  went down 31.28 points, or 0.2%, to 15597.68.

On Friday, the Dow scored its ninth record-high close of 2024, while results from Meta Platforms Inc.
META,
-3.28%
and Amazon.com Inc.
AMZN,
-0.87%
helped lift the S&P 500 to its seventh record-high close of the year.

Market drivers

Stocks ended lower Monday after the Institute for Supply Management said its services index climbed to 53.5% in January, from a seven-month low of 50.5% in December. Economists by polled by the Wall Street Journal had predicted an ISM reading of 52.0%.

The strong data may reinforce expectations the Federal Reserve will hold off on delivering rate cuts, analysts said.

“The Fed is watching for signs that the economy might be weakening, which may make them lean towards an earlier start to rate cuts. But the latest data shows the opposite,” Bill Adams, chief economist for Comerica Bank, said in a call.

Expectations that the Fed would begin cutting rates as early as March had already taken a hit after Powell indicated after the central bank’s policy meeting last Wednesday that such an early move was unlikely.

Over the weekend, Powell used an appearance on “60 Minutes” to again push back on the idea the central bank would cut rates in March.

“I think investors were a little over their skis in anticipating the Fed cutting a lot,” James Demmert, founder and chief investment officer of Main Street Research, said in a phone interview.

It would make sense for stocks to “take a breather” this week after a huge rally, but investors would be wise to use pullbacks to fill out their portfolios, Demmert said. Investors would also be well-served by paying less attention to the Fed and more attention to solid earnings, which have been the real foundation for the rally, he added.

Friday also saw the release of U.S. payrolls data, which showed a surprisingly strong 353,000 jobs created in January, further denting expectations for rapid rate cuts.

“It’s good news to have strong economic growth,” Comerica Bank’s Adams said. He added that he would be worried if the market expects the Fed to keep its policy rate higher for longer, but is not concerned if the Fed plans to cut its key interest rate slowly due to strong economic data.

See: Stock-market investors fear ‘no-landing’ economy could spell trouble. What’s next.

Of S&P 500 companies, 46% have reported quarterly results this earnings season, according to FactSet. In the week ahead, 104 S&P 500 companies will report results, including four from the Dow.

Earnings Watch: Fourth-quarter earnings are almost halfway done. Results overall have gotten better.

U.S. regional-bank shares on Monday extended their slide from last week as traders reacted to Powell’s remarks. The SPDR Regional Banking ETF
KRE
ended down 1.7% on Monday, compounding a 7.2% drop last week, according to FactSet data. 

Companies in focus

• Caterpillar Inc. shares pressed further into record territory after the maker of construction and mining equipment reported fourth-quarter profits that rose well above forecasts, with particular strength in its energy and transportation business. Shares were up 2%.

• McDonald’s Corp. stock closed down 3.7% after the fast-food giant missed Wall Street analysts’ estimates for revenue and same-store sales, while citing an impact from war in the Middle East.

• Shares of Tyson Foods Inc.
  TSN,
  +2.02%
  rose 2% after the parent of food brands Tyson, Hillshire Farm, Jimmy Dean and Ball Park beat profit estimates for its fiscal first quarter, overshadowing a fifth straight sales miss.

• Shares of Estée Lauder Cos.
  EL,
  +12.05%
  soared 12.1% after the beauty-products company reported fiscal second-quarter profits that beat expectations by a wide margin, despite continued challenges in the Asia market.

• Shares of Dow component Boeing Co.
  BA,
  -1.31%
  ended 1.3% lower after the troubled aerospace firm said it plans to spend several days fixing misdrilled holes on 50 undelivered 737 Max planes.

• Alcoa Corp.
  AA,
  -8.99%
  shares dropped 9% amid growing concerns about Donald Trump’s plans to impose heavy tariffs on imports of Chinese goods if he is elected president in November.

— Steve Goldstein contributed.