U.S. stocks dipped Monday morning as investors looked ahead to the start of corporate earnings season this week and a bevy of new economic data as the Federal Reserve prepares to accelerate its moves to counter inflation.
The S&P 500 declined 0.61% and added to last week’s losses. Nasdaq dropped 1% as technology stocks came under renewed pressure. Treasury yields climbed, and the benchmark 10-year yield rose above 2.7% to reach the highest level since January 2019.
Concerns over inflation, rising commodity prices amid Russia’s war in Ukraine, and the Federal Reserve’s monetary policy path forward remained at the center of investors’ attention. On Tuesday, traders are set to receive the latest Consumer Price Index from the Bureau of Labor Statistics, which is expected to show a staggering 8.4% year-over-year increase in prices for the biggest leap since 1982. And this comes as Fed officials have increasingly talked of larger-than-average 50 basis-point interest rate hikes this year to help bring down prices. Last week, the Fed’s March meeting minutes also showed the central bank was gearing up to begin rolling off assets from its $9 trillion balance sheet, in a further move removing financial market support and pivoting away from pandemic-era accommodative policies.
“If we think about recent cycles that are comparable, I think about 2018, 2019, the Fed was raising interest rates and running off its balance sheet. That should sound very familiar,” Seth Carpenter, global chief economist for Morgan Stanley, told Yahoo Finance on Friday. “But at the end of 2018, risk markets started to crack and the Fed reversed course really quickly.”
“The key difference now between those two episodes is they are trying to pull inflation down. They’re not trying to keep it from rising,” he added. “And so what that means is they’re trying to slow the U.S. economy. They’re trying to slow growth so much that inflation pressures come down but not so much that they tip us over into recession. And that’s tricky.”
Meanwhile, the start of the latest quarterly corporate earnings season this week will help show how individual companies have navigated inflationary pressures and the specter of slowing economic growth. As of Friday, Wall Street analysts expected S&P 500 earnings to grow 4.5% for the first quarter over last year, according to FactSet data. If realized, this would mark the slowest rate since the fourth quarter of 2020.
“Guidance and management commentary will be particularly important sources of information this quarter given the earnings uncertainty going forward,” David Kostin, Goldman Sachs chief U.S. equity strategist, wrote in a note Monday. “Consistent with prior quarters, guidance has recently been a key differentiator of stock performance.”
9:30 a.m. ET: Stocks kick off the week lower
Here were the main moves in markets as of 9:30 a.m. ET:
Read More: Stock futures drop, Treasury yields spike as traders await inflation,