Stock indexes dip to start eventful week

Wall Street skittish with Fed’s interest rate update 2 days off

NEW YORK — Stocks sank Monday as Wall Street prepped for a week full of potentially market-moving events, from decisions on interest rates around the world to earnings reports from the biggest U.S. companies.

The S&P 500 dropped 1.3 percent, giving back some of the gains that had carried it last week to its highest level since early December. The Dow Jones Industrial Average fell 260 points, or 0.8 percent, while the Nasdaq composite sank 2 percent.

Markets have been veering recently on worries that the economy and corporate profits may be set for a steep drop-off, along with competing hopes that cooling inflation will get the Federal Reserve to take it easier on interest rates.

The central bank’s next decision on rates is coming Wednesday, and most investors expect it to announce an increase of just 0.25 percentage points. That would be the smallest increase since March, following a spate of hikes of 0.75 points and then a 0.50-point increase, and it would mean less added pressure on the economy.

Higher rates combat inflation by intentionally slowing the economy, while also dragging down on prices for investments. Inflation has been cooling since the summer amid last year’s blizzard of rate hikes, but the economy has also been showing signs of concern.

The big question is whether Fed Chair Jerome Powell on Wednesday will give markets what they want to hear — hints that rate hikes will end soon and rate cuts may even be possible late this year — or stick to the Fed’s mantra that it plans to keep rates higher for longer, even if a modest recession hits.

“I think that they have no intention of cutting rates this year,” said Sam Stovall, chief investment strategist at CFRA Research, adding that the Fed waits an average of roughly nine months after its last rate hike before cutting.

“They’ll reiterate that they don’t want to make the mistakes of the 1970s,” he said, “but I think in the back of their minds, they’re going to say no matter which inflationary indicator you look at, they’re all heading in a stairstep downward pattern.”

All told the S&P 500 fell 52.79 points to 4,017.77. The Dow lost 260.99 to 33,717.09, and the Nasdaq fell 227.90 to 11,393.81.

Strategists at Morgan Stanley warn tougher times may be ahead.

“The reality is that earnings are proving to be even worse than feared based on the data, especially as it relates to margins,” they wrote in a report.