Major Stock Indexes Retreat as Fed Rate Cut Expectations Shift

Major stock indexes in the United States experienced a decline on Monday, following the gains made on Friday. The pullback came after comments from Jerome Powell, Chair of the Federal Reserve, suggested that a potential interest rate cut in September was likely but not guaranteed. As a result, the U.S. dollar showed signs of stabilization after a dip the previous week.

The dollar index, which tracks the currency against a basket of others, increased by 0.25 percent to reach 98.09. Concurrently, the euro fell by 0.37 percent, trading at $1.1672. Against the Japanese yen, the dollar strengthened by 0.49 percent, rising to 147.65. These movements reflect the ongoing volatility in the currency markets as traders anticipate the Fed’s next move.

Market Reactions and Predictions

On Monday, the Dow Jones Industrial Average dropped by 250.35 points, or 0.55 percent, closing at 45,382.14. The S&P 500 also decreased, falling 4.37 points, or 0.06 percent, to 6,462.80. In contrast, the Nasdaq Composite saw a modest gain, rising by 67.18 points, or 0.32 percent, to close at 21,564.24.

Financial analysts noted that major brokerages such as Barclays, BNP Paribas, and Deutsche Bank now forecast a 25-basis-point rate cut in September. According to the CME Group’s FedWatch Tool, futures traders are pricing in an 84 percent likelihood of this cut. Peter Cardillo, Chief Market Economist at Spartan Capital Securities, remarked, “On Friday, there was a lot of enthusiasm about Powell basically indicating that there would likely be a rate cut. The market may have overreacted to his comments.”

Data set for release on Friday, specifically the U.S. personal consumption prices index, is expected to influence Fed policy decisions ahead of the September 16-17 meeting. This index is regarded as the Fed’s preferred measure of inflation.

Global Market Trends

In global markets, the MSCI gauge of stocks declined by 0.32 points, or 0.03 percent, to 954.97. The pan-European STOXX 600 index also dropped, falling by 0.45 percent. Trading volumes in Europe were reduced due to the London markets being closed for a holiday.

The European Central Bank is anticipated to keep interest rates unchanged in September, according to sources cited by Reuters. However, discussions regarding potential rate cuts may resume in the autumn should economic conditions weaken.

In a related development, U.S. Treasury yields increased as traders prepared for upcoming auctions. The yield on benchmark U.S. 10-year notes rose by 2.9 basis points to reach 4.287 percent. Earlier, eurozone bond yields also saw an uptick, reversing their decline from late Friday.

Commodity markets also reflected significant movements. U.S. crude oil prices increased by 1.98 percent to $64.92 per barrel, while Brent crude rose by 1.76 percent, trading at $68.92 per barrel. Spot gold prices experienced a slight increase of 0.05 percent, reaching $3,373.48 per ounce.

As investors await further developments, particularly from major companies like Nvidia, which is set to release its financial results on Wednesday, the market remains in a state of cautious anticipation.