U.S. stocks are on the decline, weighed down by ongoing worries about elevated interest rates. The S&P 500 started the day down 0.8% on Tuesday after reaching an all-time high last week. The Dow Jones Industrial Average fell by 398 points, while the Nasdaq composite was down 1.2%. The stock market’s remarkable surge since late October has largely been fueled by expectations of multiple interest rate cuts by the Federal Reserve this year. However, stronger-than-expected economic reports have raised concerns that the Fed may not reduce rates as rapidly as anticipated.
Ahead of this week’s release of key labor market data that could influence the Federal Reserve’s decision on interest rates, Wall Street showed a downward trend in premarket trading on Tuesday.
Futures for the S&P 500 slipped 0.3% before the bell, while futures for the Dow Jones Industrial Average fell 0.4%.
Early trading saw a decline in health care companies following the government’s finalization of reimbursement rates for Medicare Advantage health plan providers. These rates, unchanged from the initial proposal, place a cap on annual out-of-pocket expenses for Medicare Part D participants at $2,000. Concerns have arisen regarding these rates and their potential impact on margins.
Companies such as Humana, down 10%, and CVS, down 5%, had previously cautioned investors about rising costs earlier this year.
PVH, the parent company of Tommy Hilfiger and Calvin Klein, saw a nearly 21% drop after providing a bleak forecast for 2024, despite surpassing fourth-quarter sales and profit targets. This trend has been observed among specialty retailers in recent months, where strong quarterly performances are overshadowed by lowered expectations for the future.
Donald Trump’s social media company, Trump Media & Technology Group, also experienced a drop of nearly 3% in early trading after losing more than a fifth of its value on Monday.
GE Aerospace is set to launch on the New York Stock Exchange today following the spin-off of its GE Vernova division. The former industrial giant General Electric is now three separate public companies, including GE HealthCare, marking the end of an era for the conglomerate that was once a household name in America.
After a report indicated unexpected growth in U.S. manufacturing last month, Treasury yields have somewhat stabilized following significant increases on Monday. This latest data underscores the continued strength of the U.S. economy despite high interest rates. While this is positive for the stock market as it can lead to increased profits for companies, it also raises concerns about inflation. This could result in a more cautious approach from the Federal Reserve regarding interest rate cuts that investors have been anticipating.
Traders on Wall Street briefly reduced bets on the first interest rate cut coming as soon as June following the manufacturing data. However, Deutsche Bank economists still consider this to be a “reasonable baseline” expectation. They caution that recent strong statements from Fed officials could suggest that interest rates will remain higher for longer than previously thought.
This week will provide several economic reports that could influence the Fed’s decision-making, including updates on job openings, layoffs, and the strength of U.S. services businesses. The highlight will be on Friday when economists expect a report to show a slight cooling in hiring last month.
A slowdown would be welcomed on Wall Street, where the hope is for a solid economy that does not push inflation higher. Inflation, while milder than its peak nearly two years ago, has shown signs of becoming more erratic this year, with reports coming in hotter than expected.
In Asian markets, Hong Kong stocks led gains, while China real estate developer Vanke slumped more than 10%. Investors are evaluating economic data from South Korea and Australia.
Tokyo’s Nikkei 225 index climbed 0.3% to 39,936.35, recovering from Monday’s decline.
The Hang Seng in Hong Kong added 2.7% to 16,981.43, and the Shanghai Composite index was up 0.1% at 3,080.51.
In South Korea, the Kospi edged 0.1% higher to 2,750.63.
Australia’s S&P/ASX 200 gained less than 0.1% to 7,900.50.
In Europe at midday, France’s CAC 40 and Germany’s DAX each lost 0.1%, while Britain’s FTSE 100 gained close to 0.3%.
In other trading, U.S. benchmark crude oil rose $1.34 to $85.05 per barrel in electronic trading on the New York Mercantile Exchange. Brent crude, the international standard, added $1.27 to $88.69 per barrel.
The U.S. dollar inched up to 151.64 Japanese yen from 151.63 yen. The euro cost $1.0747, up slightly from $1.0743.
On Monday, the S&P 500 dipped 0.2% from its all-time high to finish at 5,243.77. The Dow Jones Industrial Average dropped 0.6% from its record to 39,566.85. The Nasdaq composite was an outlier and added 0.1% to 16,396.83.
Featured Image: Unsplash
