The U.S. stock market started the week on a weak note as major indexes fell on Monday, driven by concerns over Federal Reserve policy. Robust payroll data last week heightened expectations that the Fed will keep interest rates higher for longer, pushing bond yields to multi-month highs and shaking investor confidence.

Market Highlights: Dow, S&P 500, Nasdaq Performance

• S&P 500: Dropped 0.7%, reaching its lowest level in two months at 5,786.25.
• Nasdaq Composite: Fell 1.43%, closing at 18,887.50, driven by sharp declines in tech stocks.
• Dow Jones: Gained slightly by 0.25%, closing at 42,043.51.
• Volatility Index (VIX): Rose significantly, hitting a three-week high and signaling growing market uncertainty.

Key Market Drivers

1. Fed Rate Expectations:
   Investors are adjusting their bets on Federal Reserve rate cuts in 2025. Strong economic data suggests the Fed may maintain its hawkish stance, with traders now expecting only a modest 27-basis-point rate cut by December. Bond yields remain elevated, weighing on equity markets.

2. Sector Performance:

   • Technology Stocks: The sector led the losses, falling 1.8%. Major players saw declines:
     • Tesla (TSLA): -2%
     • Apple (AAPL): -2.7%
     • Alphabet (GOOGL): -1.5%
   • Chip Stocks: Nvidia (-3.3%) and AMD (-1%) dropped after the U.S. government announced new restrictions on AI chip exports.
   • Healthcare Stocks: Companies like UnitedHealth (+3.6%), CVS Health (+4.1%), and Humana (+5.9%) surged after the government proposed higher Medicare Advantage payments for 2026.
   • Moderna: Plummeted by 22% after cutting its 2025 sales forecast by $1 billion.

3. Inflation Fears:
   Better-than-expected economic activity has renewed inflation worries, leaving investors uncertain about the Fed’s next moves.

What’s Next for Investors?

• Economic Reports to Watch:
  Key updates this week include the Consumer Price Index (CPI) and the Federal Reserve’s Beige Book on Wednesday. These will offer more insight into inflation and economic growth, influencing the Fed’s policy outlook.

• Corporate Earnings:
  Big banks like JPMorgan Chase and Wells Fargo are set to report their quarterly results on Wednesday. These reports will provide further clues about the health of the economy and corporate profitability.

Investor Sentiment: Cautious Outlook

As traders recalibrate expectations for monetary policy, risk appetite remains low. The market’s “risk-off” attitude reflects concerns over inflation, bond yields, and policy uncertainty. Positive economic data could still support corporate earnings, but the road ahead remains bumpy.

Source: Reuters.com