NEW YORK (AP) — U.S. stocks are trickling down from Monday's record levels on further evidence that the economy remains strong.
It was another winning week for the S&P 500, which fell 0.1% in late trading to a new all-time high. The Dow Jones Industrial Average fell 179 points, or 0.5%, after initially falling as much as 434 points. The Nasdaq Composite was little changed with about an hour of trading left.
As we near the halfway point of earnings season, about half of the S&P 500 companies, including most of the market's most influential companies, have released their latest financial results. Estée Lauder rose 12.6% after reporting sales and profits that beat analysts' expectations. Meanwhile, McDonald's fell 3.8% despite reporting better-than-expected profits. Sales for the latest quarter were slightly below expectations.
Bank of America strategists say companies that missed analysts' earnings estimates this fiscal year are being punished more severely than usual for their stocks.
Stock markets broadly felt pressure from further increases in yields in the bond market. Interest rates rose after Wall Street traders postponed their predictions of when the Federal Reserve would start lowering its key interest rates.
The Fed lowered the federal funds rate to its highest level since 2001 in an effort to curb high inflation. High interest rates intentionally slow down the economy by making borrowing more expensive and hurting investment prices.
Federal Reserve Chairman Jerome Powell reiterated in an interview on Sunday that the Fed could cut interest rates three times this year because of cooling inflation. But he also hinted again in an interview on “60 Minutes” that the Fed is unlikely to start in March, as many traders had originally hoped.
After the meeting, traders increasingly expected rate cuts to begin in June rather than May, according to CME Group data.
Goldman Sachs economist David Mericle still expects cuts to begin in May. But speaking in an interview on Sunday, he said he thought rate cuts were more likely to start later and more rapidly.
The yield on the 10-year U.S. Treasury rose to 4.16% from 4.09% late Friday and from less than 3.80% late last year.
The rise accelerated after a report said the U.S. services industry, led by health care and social assistance, was growing stronger than economists expected. The Institute for Supply Management said service companies are optimistic about the economy but remain cautious because of inflation and other challenges.
Such signals that the economy is strong could sustain upward pressure on inflation, giving the Fed further reason to pause before cutting rates. This will have a negative impact on the stock market, as interest rates are one of the main instruments that determine stock prices, and lower interest rates will help.
However, there is some upside to stocks as the U.S. economy explodes due to fears of an impending recession. That should drive a company's earnings growth, which is another way to determine what stock prices will do over the long term.
Monday's update on the services industry came on the heels of a report Friday showing U.S. employers hired far more workers last month than economists expected.
Even American consumer confidence has increased recently. This is an improvement from a period when sentiment was at a low level due to dissatisfaction with high inflation. Such melancholy gave rise to the threat of “vibe sessions”.
“Unless a risk event occurs, such as fighting in the Middle East escalating into a regional war, it is unclear what will disrupt the 'atmosphere',” said Jason Draho, head of asset allocation Americas. . UBS Global Wealth Management.
Caterpillar, seen as a bellwether for the global economic boom, rose 2.8% after its latest quarterly profit beat expectations.
Elsewhere on Wall Street, Air Products & Chemicals fell 15.2% after it reported earnings and sales that were lower than analysts expected. Boeing Co. fell 1.7% after new problems were discovered with some of its 737 planes, potentially delaying deliveries of about 50 planes. The company and McDonald's were two of the biggest reasons the Dow Jones Industrial Average lagged the market.
In overseas stock markets, Chinese indexes soared following the Chinese government's latest pledge to strengthen its financial markets.
Stocks in Shanghai fell 1% after emerging from their worst week in five years. Chinese stocks have struggled on concerns about the struggling real estate industry and a disappointing overall economic recovery.
AP writers Matt Ott and Zimo Zhong contributed.