Most major indices are in the red on Monday, returning some of Friday’s notable gains. Why are stocks down today?
Well, it appears traders are showing a bit anxiety after the S&P 500 touched a new all-time high last Friday. Indeed, today’s drop could easily be chalked up as a technical pullback, reflecting resistance as the S&P attempts to break through its new ceiling.
While the S&P is in the red at the time of this writing, the Nasdaq Composite is staying in the green ever so slightly. The Dow Jones Industrial Average (DJIA) may prove today’s biggest loser, however, down 0.5% and possibly taking a hit from a dreary McDonald’s (NYSE:MCD) fourth-quarter earnings report.
Why Are Stocks Down Today?
Traders may also be responding to changes in the 10-year Treasury yield, which climbed 13 basis points to 4.168%. This is likely a delayed reaction to last week’s economic data which strongly suggested that the Federal Reserve may keep rates elevated for longer than expected. Well, that and the Fed’s outright declaration that it plans to keep rates higher for longer.
Indeed, at the January policy meeting last week, Fed Chair Powell told reporters that member of the central bank would like to see more good inflation data before they decide to lower interest rates. This has decreased the chance of a March rate cut to less than 15%, down from more than 20% prior to the meeting, per the CME Group’s FedWatch Tool.
Friday’s shockingly strong January jobs report only reinforced the notion that the Fed may be able to hold off cutting rates for quite some time before incurring any economic blowback. As such, it’s no surprise to see Treasury rates take into account a slightly steeper timeline. This is likely what’s weighing on stocks today.
“It’s a recalibration of expectations around how soon the Fed will pivot,” said Truist Co-Chief Investment Officer Keith Lerner. “The pivot trade is being unwound to a certain extent. The tension between a strong economy and what that means for the Fed is likely to continue to create these kind of reset days.”
On the date of publication, Shrey Dua did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
