Nasdaq 100, Dow Jones, S&P 500 News: US Stocks Drop Amid Reduced Rate Cut Expectations

James Hyerczyk
Published: Apr 2, 2024, 15:27 GMT+00:00

Key Points:

  • Tech giants' stocks fall, signaling investor caution over Fed's rate plans
  • Strong U.S. economic data sparks debate on future rate cuts.
  • Market volatility spikes, anticipating Fed's monetary policy shifts.
S&P 500 Index, Nasdaq-100 Index, Dow Jones

In this article:

Stock Market Retreats on Rate Cut Concerns

U.S. stock indexes experienced a downturn on Tuesday. The decline was primarily driven by heavyweight technology stocks and health insurers, amidst growing investor skepticism over the Federal Reserve’s potential for fewer interest rate cuts than previously anticipated. This sentiment emerged following strong economic indicators, challenging the expectation of a more dovish Fed stance.

At 15:15 GMT, the Dow Jones is trading 39160.80, down 405.05 or -1.03%. The S&P 500 Index is at 5195.15, down 48.62 or -0.93% and the Nasdaq Composite is trading 16184.20, down 212.63 or -1.30%.

Impact of Economic Data

Influential technology stocks like Nvidia, Microsoft, and Amazon each saw declines exceeding 1%, correlating with a notable increase in the U.S. Treasury 10-year yield, which reached its highest point since late November. This response followed the release of U.S. economic data for February, which highlighted stronger-than-expected factory orders and job openings, signaling robust economic health.

Manufacturing Data and Rate Cut Doubts

Both the Dow and S&P 500 closed lower on Monday, responding to unexpectedly strong manufacturing data from the Institute for Supply Management (ISM). This data raised doubts about the Federal Reserve’s earlier projection of three interest rate cuts, a key factor in recent market movements.

Market Strategists Weigh In

David Russell, global head of market strategy at TradeStation, commented on the market’s reaction to the ISM data and the anticipation of Friday’s employment report, highlighting concerns about the likelihood of multiple rate cuts this year.

Fed Decisions and Market Expectations

Market participants are currently assigning a nearly 57% probability to a Fed interest rate cut of at least 25 basis points in June, with expectations for additional cuts in 2024. However, recent strong economic indicators are causing a reevaluation of these expectations.

Volatility and Upcoming Fed Remarks

The CBOE Volatility Index, a measure of market uncertainty, reached a two-week high, underscoring investor anxiety. Upcoming comments from various Federal Reserve officials, including New York Fed President John Williams and others, are eagerly awaited for further guidance.

Quarterly Contrast and Sector-Specific Movements

This cautious market tone contrasts sharply with the S&P 500’s strong performance in the first quarter, the best in five years, driven by AI optimism and hopes for relaxed monetary policy. Specific sectors like healthcare insurance saw significant declines, with companies like UnitedHealth, CVS Health, and Humana affected by unchanged Medicare reimbursement rates. Additionally, Tesla’s stock fell after underwhelming quarterly deliveries, and Calvin Klein-parent PVH Corp forecasted a notable drop in revenue.

Cryptocurrency Stocks Follow Bitcoin’s Decline Cryptocurrency-related stocks, including Coinbase, MicroStrategy, and Riot Platforms, also fell, mirroring a 6% decline in Bitcoin.

Market Breadth

The broader market sentiment was negative, with declining issues significantly outnumbering advancers on both the NYSE and Nasdaq.

Short-Term Market Forecast

Given the current market reaction to the stronger economic data and the uncertainty surrounding future Fed moves, a cautious outlook is recommended in the short term. Investors should closely monitor upcoming Fed communications and Friday’s employment report for further market direction. While long-term optimism remains due to robust economic indicators, short-term market volatility is expected to persist.

Technical Analysis

Daily E-mini S&P 500 Index

The E-mini S&P 500 Index is in a weak position on Tuesday after crossing to the bearish side of a rising wedge that had been guiding the market higher since January.

The bottom of the wedge at 5264.75 is new resistance today. If this breakdown creates enough downside pressure then look for a test of the 50-day moving average at 5137.33. This indicator is controlling the intermediate trend.

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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