U.S. Stocks Fall as Investors Ponder Fed Rate Path

U.S. stocks fell Monday, continuing their decline after strong jobs data last week raised the prospect of more interest-rate increases by the Federal Reserve.

In 4 p.m. ET trading, the S&P 500 was down 0.6%, after falling 1% Friday. The Dow Jones Industrial Average fell about 35 points, or 0.1%, while the technology-heavy Nasdaq Composite declined 1%.

Treasurys also fell in price Monday, pushing the yield on the 10-year note up to 3.632% from 3.531% Friday. The yield on the two-year note, which is more sensitive to Fed rate moves, climbed to 4.454% from 4.299% on Friday, its highest 3 p.m. ET settle in a couple of months. Rising yields tend to hurt tech stocks and other speculative shares by making it more attractive to hold bonds and relatively less attractive to bet on companies whose value depends on their growth prospects. Yields rise as prices fall.

Stocks ripped higher at the start of 2023, boosted by wagers that slowing inflation would cause the Fed to pivot from hiking rates to cutting them later this year. But Friday’s surprisingly strong jobs report suggested the Fed might feel the need to keep raising rates to curb wage growth, and then hold rates steady for an extended period, investors said.

“What seems to have driven markets this year seems to be expectations of either fewer rate hikes or, after the peak in rates, some fairly significant rate cuts, as well as perhaps some more optimism over global growth, particularly in Europe and China,” said

Edward Smith,

co-chief investment officer at Rathbones. 

“The selloff in the last couple of days might be some realization, particularly on the rates side of things, that the markets got carried away,” he said. Given how rapidly prices have been rising, Mr. Smith added, “We’ve got a long way to go. That’s going to keep the Fed from delivering those rate cuts.”

Fed Chairman

Jerome Powell

is due to give an interview Tuesday. Investors will trawl his remarks for clues about the central bank’s response to the job numbers.

The focus will be on whether Mr. Powell emphasizes the central bank’s view that short-term rates will peak at more than 5%, said

Jim Reid,

a strategist at Deutsche Bank, compared with the current range of 4.5% to 4.75%. 

Traders in interest-rate futures see a more than two-thirds chance that the Fed’s target will still be at 5% or above by late September, according to CME Group, up from less than a 50% chance a week ago.

Wall Street will have more corporate earnings to digest this week.


Michael M. Santiago/Getty Images

Up ahead is another busy week for U.S. corporate earnings. Game companies

Activision Blizzard


Take-Two Interactive Software

are due to report after Monday’s close, as is


The private-equity groups


Carlyle Group


Apollo Global Management

are scheduled to file results in the coming days, as are others such as





Uber Technologies.

Just over half of the companies in the S&P 500 have filed earnings for the final quarter of 2022. Around 70% have beaten analyst forecasts for earnings per share, according to FactSet. But companies routinely beat such forecasts, and Mr. Smith at Rathbones said that is one of the lowest rates of the past decade—a shift he said is consistent with a looming recession.

All of the S&P 500’s 11 sectors were in negative territory on Monday afternoon, with tech, communications and materials stocks posting some of the sharpest losses. Shares of

Dell Technologies

fell roughly 3% at 4 p.m. ET, after the computer maker said it would cut 5% of its workforce due to worsening market conditions.

A flurry of news related to mergers and acquisitions drove moves in some stocks.


fell 4.5% after the gold mining company made a roughly $17 billion offer for Australia’s

Newcrest Mining.

Public Storage

slipped 0.3% after saying it had made an $11 billion unsolicited offer for

Life Storage,

whose shares surged 12%. Shares in


rallied 20% after Bloomberg News reported that


had expressed interest in taking over the contract manufacturer.

In commodities, oil prices rose, a day after the West hit Russian refined fuels such as diesel with sanctions. Front-month contracts for Brent crude advanced 1.3% to $80.99 a barrel.

Overseas markets broadly fell. The Stoxx Europe 600 declined 0.8%, led lower by technology and real-estate stocks. China’s Shanghai Composite Index dropped 0.8%.

Japan was an outlier. The Nikkei 225 rose 0.7%, and the yen weakened against the dollar, after a report that Bank of Japan official

Masayoshi Amamiya

had been approached to succeed BOJ Gov.

Haruhiko Kuroda.

Analysts said Mr. Amamiya is the most likely of the leading candidates to continue with Mr. Kuroda’s easy monetary policies.

Write to Joe Wallace at joe.wallace@wsj.com and Alexander Osipovich at alexo@wsj.com

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