NEW YORK (`) — Wall Street had a lackluster return to trading Tuesday after a three-day holiday weekend.
The S&P 500 fell 17.85 points, or 0.4%, to 4,765.98. The Dow Jones Industrial Average fell 231.86, or 0.6%, to 37,361.12, and the Nasdaq Composite fell 28.41, or 0.2%, to 14,944.35.
Spirit Airlines fell 47.1% after a U.S. judge blocked its takeover by JetBlue Airways, saying it would mean higher fares for fliers. JetBlue rose 4.9%.
Bank stocks, meanwhile, were mixed as earnings reporting season for the final three months of 2023 gets underway. Morgan Stanley fell 4.2% after it said a legal matter and a special assessment reduced its pre-tax profit by $535 million, while Goldman Sachs fell $0.7 million higher after reporting results, which exceeded Wall Street forecasts.
If Wall Street analysts' forecasts are to be believed, companies across the S&P 500 are likely to report meager, if any, fourth-quarter earnings growth compared to last year. Earnings have been under pressure for more than a year due to rising costs and high inflation.
But optimism is greater for 2024, with analysts forecasting strong earnings per share growth of 11.8% for S&P 500 companies, according to FactSet. This, along with expectations of multiple interest rate cuts from the Federal Reserve this year, have helped the S&P 500 post 10 successful weeks out of the last 11 weeks. The index remains within 0.6% of its all-time high reached two years ago
Treasury yields have already fallen in the bond market amid expectations of impending interest rate cuts, which traders believe could begin as early as March. It's a significant turnaround from previous years, when the Federal Reserve sharply raised interest rates in hopes of controlling high inflation.
Loose interest rates and yields reduce pressure on the economy and the financial system while increasing the price of investments. And according to Michael Wilson, a strategist at Morgan Stanley, interest rates have been the main driver of the stock market over the past six months.
He expects this dynamic to continue in the near term, with “the bond market continuing to rule.”
Traders currently expect interest rates to be cut far more by 2024 than the Fed itself has announced. That raises the potential for big market swings surrounding every Fed official speech or economic report.
Bond market yields rose after Fed Governor Christopher Waller said in a speech that interest rate policy was “rightly set.” Following the speech, traders made some bets that the Fed's first rate cut would come in May instead of March.
Waller did say that the weakening data reports “have left me more confident than I have been since 2021 that inflation is on track to reach the Fed's 2 percent target” and that the central bank should cut interest rates this year “as long as inflation “does not do this.” Rebound and stay elevated.”
Until then, however, the economy is doing well, Waller said, giving the Fed an opportunity to wait and monitor incoming data before taking the next step. “We can take our time to make sure we get this right,” he said.
The yield on the 10-year Treasury note rose to 4.06% from 3.95% late Friday, adding pressure to the stock market. Higher yields can have a negative impact on corporate earnings and have a negative impact on investors, among other things, although the 10-year yield is still well below the 5% level it reached in October.
On Wall Street, Boeing posted one of the market's biggest losses as concerns remain about problems with its 737 Max 9 aircraft following the recent Alaska Airlines plane crash. Boeing lost 7.9%.
On the winning side was Carrols Restaurant Group, the largest Burger King franchisee in the US, which rose 12.5%. Restaurant Brands International said it will buy any Carrols shares it doesn't already own for $9.55 per share in cash.
Stock markets abroad were mostly in the red, including the Japanese stock market, which was on a winning streak and reached its highest level since its bubble burst in 1990.
The Nikkei 225 index slipped 0.8% after the Japanese yen strengthened against other currencies. A stronger yen can hurt profits for Japanese exporters, and it rose on expectations that the Bank of Japan could prepare to end its long-standing policy of keeping interest rates below zero.
` business reporters Matt Ott and Elaine Kurtenbach contributed.
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