Global stocks drop as optimism over early rate cuts fades

by Jonathan Adams
Dow Jones

The Dow Jones Industrial Average dropped 0.7%, while the broad-based S&P 500 pulled back 0.3% and the tech-heavy Nasdaq Composite Index ended 0.2% lower

Global stock markets mostly dropped Monday after comments by Federal Reserve Chair Jerome Powell doused flickering hopes that US interest rate cuts could still begin in March.

After hiking rates to a 23-year high to fight persistent inflation, the Fed has in recent weeks been indicating that policymakers could be done hiking and are instead talking about when to begin lowering them.

In an interview that aired Sunday, Powell said the central bank wants to see more data before starting to reduce interest rates.

The “danger of moving too soon is that the job’s not quite done, and that the really good readings we’ve had for the last six months somehow turn out not to be a true indicator of where inflation’s heading,” he told the CBS news program “60 Minutes.”

“The prudent thing to do,” he continued, was to “just give it some time and see that the data continue to confirm that inflation is moving down to 2% in a sustainable way.”

The Dow Jones Industrial Average dropped 0.7% on Monday, while the broad-based S&P 500 pulled back 0.3% and the tech-heavy Nasdaq Composite Index ended 0.2% lower.

Among individual stocks, Caterpillar shares ended up 1.9% after the industrial giant reported a rise in Q4 earnings to wrap a strong 2023.

And McDonald’s saw its shares drop 3.7% after reporting slower comparable sales growth.

Meanwhile, yields on two-year and 10-year US Treasury notes increased, as hopes for early rate cuts faded.

Treasury bond yields are seen as a proxy for US interest rates, increasing on expectations of hikes or prolonged pauses, and dropping when the markets bring forward their forecasts of rate cuts.

Europe’s main indices all closed flat, while most of Asia struggled again, with Hong Kong and Shanghai extending a sell-off fuelled by growing concerns about the Chinese economy.

The bright spot in Asia was Japan, where the Nikkei ended the day 0.5% higher.

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