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U.S. stocks plopped at the open Monday as investors faced another medley of earnings and evaluated the outlook for interest rates following January’s blowout jobs report.
The S&P 500 (^GSPC) stumbled 0.5% at the start of the session, while the Dow Jones Industrial Average (^DJI) shed about 100 points, or 0.3%. The technology-heavy Nasdaq Composite (^IXIC) declined 0.7%.
Dell Technologies (DELL) will eliminate about 6,650 jobs, or roughly 5% of its global workforce, the company said, making it the latest in a wave of technology companies to announce layoffs. Shares fell 1.4% early into the session.
In a memo to employees obtained by Bloomberg, co-Chief Operating Officer Jeff Clarke said the company is grappling with market conditions that “continue to erode with an uncertain future.”
In other pockets of the market, the U.S. dollar edged higher for a third consecutive day after surging 1% following Friday’s jobs report.
Oil prices also ticked up, with West Texas Intermediate (WTI) crude up 0.7% to $73.93 per barrel.
The moves early Monday come after stocks dropped in the previous trading session but closed higher for the week. Despite Friday’s declines, equity markets have been on an uptrend this year. In 2023 to date, the S&P 500 is up 7.7% as of Friday’s close, the Nasdaq 14.7% after rising for five straight weeks, and the Dow 2.4%.
Whether this momentum can be sustained will be a big focus of the week ahead, especially after the government’s monthly jobs report showed payrolls rose by 517,000 last month. For investors, this dampened prospects the Federal Reserve may pause raising interest rates this year, an expectation that has fueled this year’s rally.
“Job creation in January was eye-popping and contrary to the market narrative earlier in the week of the Fed not only pausing but reversing course and lowering interest rates later this year,” BMO Wealth Management’s chief investment strategist Yung-Yu Ma said in a note. “Unless this labor market strength turns out to be a one-month blip, the hawks on the Fed are likely to dig in and keep rates higher for longer.”
Investors will get more insight into the U.S. central bank’s reaction to recent jobs data when Fed Chair Jerome Powell speaks at the Economic Club of Washington, D.C., on Tuesday.
“Looking ahead, the key question for markets is whether Powell’s dovishness was intentional or accidental,” the team at BofA said, adding that Powell may strike a more hawkish tone during his appearance at the Economic Club this week. “We think the Fed’s embrace of disinflation is genuine and it was always going to be difficult for Powell to send a hawkish message after decelerating the pace of hikes for the second time in as many meetings.”
Meanwhile, even as the earnings season slows, Wall Street will have a docket of financials to parse through this week. Among names set to be most closely watched are Walt Disney (DIS), Uber Technologies (UBER), PayPal (PYPL), and PepsiCo (PEP).
The share of S&P 500 companies reporting positive earnings surprises remained flat over the past week, but the magnitude of upside earnings surprises decreased, largely driven by disappointing results from megacap technology giants, according to FactSet Research.
“As a result, the earnings decline for the fourth quarter is larger today compared to the end of last week and compared to the end of the quarter,” FactSet’s senior earnings analyst John Butters notes. “If the index reports an actual decline in earnings for Q4 2022, it will mark the first year-over-year decline in earnings reported by the index since Q3 2020.”
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