NEW YORK (AP) — U.S. stocks are falling from record highs on Monday after a surprisingly strong report on U.S. manufacturing raised questions about how quickly interest rate cuts could come.
The S&P 500 fell 0.3% in intraday trading, hitting a new all-time high in a rally that began in late October, the latest winning month. As of 11:30 a.m. ET, the Dow Jones Industrial Average was down 245 points, or 0.6%, and the Nasdaq Composite was down 0.1%.
FedEx fell 2.1% after it announced it would not extend its contract with the U.S. Postal Service for domestic air cargo deliveries, which ends Sept. 29. AT&T fell 1.4% after the company said over the weekend that the company contains sensitive information for millions of current and former employees. The customer was recently discovered on the “dark web”.
Baxter International’s 2.3% rise helped offset some of the loss. Baxter International announced that its Novum IQ high-capacity infusion pump for use in the medical field has been approved by U.S. regulators. Miner Newmont added 1.9% as gold prices continued to set records.
In the bond market, U.S. Treasury yields soared after reports that U.S. manufacturing unexpectedly returned to growth last month. According to the Supply Management Association, the economic slump that lasted 16 months has ended.
A strong economy is good for the stock market because it can help companies increase their profits. However, there is a possibility that upward pressure on inflation will continue. This, in turn, could mean a delay in the Fed’s interest rate cuts, which investors have been clamoring for.
The manufacturing data led Wall Street traders to scale back bets on a first rate cut, which could come as early as June. The probability of that happening remains at 53.5%, down from about 70% a week ago, according to CME Group data.
The Fed raised its key policy interest rate to its highest level since 2001 in an effort to slow the economy and hit investment prices enough to curb inflation. The main reason the S&P 500 index soared more than 20% from October to March was expectations for future interest rate cuts. So did a series of reports showing that the U.S. economy remains remarkably strong despite high interest rates.
This week will provide further updates on the job market and key areas of the economy, including national jobs data and the strength of the U.S. service sector. The headliner will be released on Friday, when economists expect a report to show that employment cooled slightly last month.
Some slowdown will be welcomed on Wall Street. The economy is expected to remain strong, but not strong enough to push up inflation. Inflation is lower than it was at its peak about two years ago. But recent progress has been more erratic, with hotter-than-expected reports this year.
Fed Chairman Jerome Powell reiterated Friday that the Fed is waiting for “better inflation indicators” before cutting rates this year. The company remains firm on its outlook for three rate cuts in 2024. Wall Street traders, who have long predicted further interest rate cuts this year, agreed.
Friday’s report said inflation is trending as expected, at least according to the Federal Reserve’s preferred metrics. Both the U.S. bond market and stock market were closed on that day.
In the bond market, the 10-year Treasury yield rose to 4.32% from 4.21% late Thursday. The two-year bond yield, which more accurately reflects expectations for the Fed, rose to 4.71% from 4.63%.
In overseas stock markets, the Bank of Japan’s quarterly business survey showed that sentiment among major manufacturers had fallen for the first time in a year, and Tokyo’s Nikkei Stock Average fell 1.4%.
Shares in Shanghai rose 1.2% after a survey suggested China’s manufacturing sector is strengthening.
Stock markets in Europe were closed for the holiday.
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AP Business writers Matt Ott and Elaine Kurtenbach contributed.
