Stocks hold steady after last week’s big swerves
U.S. stock indexes held at a virtual standstill Monday as trading calmed after a whirlwind couple of days left them a bit shy of their records.
The Standard & Poor’s 500 edged down by 1.95 points, or less than 0.1%, to 5,202.39. The benchmark index was coming off a shaky stretch where a 1.2% drop immediately flipped to a 1.1% gain.
The Dow Jones industrial average tiptoed 11.24 points lower, or less than 0.1%, to 38,892.80, while the Nasdaq composite inched 5.44 points higher, or less than 0.1%, to 16,253.96.
Much of the focus has been on interest rates and when the Federal Reserve will lower them to ease pressure on the economy and financial system.
A string of reports showing inflation and the economy have remained hotter than expected has forced Wall Street to delay forecasts for when relief on rates could arrive.
This week has several flashpoints that could further swing expectations. On Wednesday will come the latest monthly update on the inflation that U.S. consumers are feeling. Later in the week will be reports on inflation at the wholesale level and expectations for upcoming inflation among U.S. households.
Fed Chair Jerome H. Powell said recently he still expects interest rate cuts this year, but the central bank needs additional confirmation inflation is heading toward its target of 2%. The Fed has been holding its main interest rate at the highest level since 2001, hoping to grind down enough on the economy and prices for investments to get inflation under control. The risk of holding rates too high for too long is that it could cause a recession.
Some Fed officials have raised the possibility of rates staying high for longer, if inflation remains stubborn. That has pushed many traders on Wall Street to cut back expectations for how many rate cuts may arrive this year to two from three. They had already drastically pulled back their forecasts from the start of this year, when many were expecting six cuts or more.
Traders now see roughly a coin f lip’s chance of the Fed cutting interest rates at its meeting in June, down from a better than 70% probability a month ago, according to data from CME Group.
Cuts to interest rates not only make borrowing easier for U.S. households and companies, but they also encourage investors to pay higher prices for stocks and other investments.
Stock prices have already leaped in part on such expectations.
U.S. stocks have remained near records despite diminishing expectations for rate cuts this year because of the hope that the strong economy will drive profits for companies. Profits and interest rates are the two main levers that set stock prices.
In the bond market, Treasury yields rose to add to their gains for the year so far on diminished expectations for cuts to rates. The yield on the 10-year Treasury ticked up to 4.42% from 4.40% late Friday and from less than 3.90% at the start of the year.
In stock markets abroad, indexes mostly rose across Europe and Asia, though stocks fell 0.7% in Shanghai.