Wall Street Falls With Interest Rates, Earnings in Focus

Wall Street's main indexes lost ground Monday after Federal Reserve Chair Jerome Powell pushed back firmly against speculation that rate cuts would be imminent, while investors assessed a mixed bag of U.S. earnings reports.

In an interview aired on Sunday, Powell said more evidence on a sustainable downtrend in inflation was needed to warrant lower rates, while Minneapolis Fed President Neel Kashkari wrote in an essay published on Monday that a resilient economy could defer rate cuts for some time.

Fresh data from the Institute for Supply Management showed the U.S. services sector's growth picked up in January, with a measure of input prices rising to an 11-month high.

This added to doubts about rate cuts, already kindled by Friday's data, which signaled the labor market's resilience in the face of tight credit conditions.

Adding pressure was U.S. Treasuries, with 10-year yields up for second day straight and hitting their highest level since late January.

"Chairman Powell threw a wet blanket over trading today, taking any chance of a March rate cut off the table," said Jack Ablin, chief investment officer at Cresset Capital in Chicago.

But with all three of Wall Street's major indexes paring losses as the session wore on, Ablin said investors are likely conflicted since positive economic data supports higher rates.

"Equity investors are torn between the higher rates and the stronger growth. They're no longer sure that good is bad news," he said. "Stronger growth on the economic front gives the Fed more flexibility to keep rates higher and know they're not going to kill the economy but still have a potent weapon against inflation."

And since Monday's decline followed record high closing levels in the benchmark S&P 500 and the blue-chip Dow on Friday, Carol Schleif, chief investment officer at BMO family office in Minneapolis, Minnesota, saw it as a potential opportunity for investors who had been on the sidelines.

"The market had gotten way out over its skis, especially coming out of November, December," Schleif said, adding that she was "not viewing this as the start of a major pullback."

According to preliminary data, the S&P 500 lost 15.85 points, or 0.32%, to end at 4,942.55 points, while the Nasdaq Composite lost 32.44 points, or 0.21%, to 15,595.20. The Dow Jones Industrial Average fell 285.71 points, or 0.74%, to 38,368.71.

Results were in from nearly half of the S&P 500 firms and fourth-quarter earnings estimates were improving sharply, with about 80% of the reports beating expectations, according to LSEG data on Friday.

"Mostly earnings season has been pretty mixed bag. It's been more stock specific than industry specific," said BMO's Schleif.

Caterpillar rose to hit a record high after posting a higher quarterly profit, while Estee Lauder shares surged as the MAC lipstick maker aims to cut about 3% to 5% of its workforce.

Boeing shares slipped after it said a new quality glitch in some 737 MAX planes would delay some deliveries.

Tesla shares hit a near one-year low after Piper Sandler slashed the stock's price target and on a report that German software company SAP will no longer source its company cars from the EV maker.

Nvidia hit a record high following a price-target raise by Goldman Sachs.

Catalent shares soared on Novo Nordisk parent Novo Holdings' plans to buy the contract drugmaker in an $11.5-billion all-cash deal.