The S&P 500 rose Monday but remained on track to close out its worst month since March 2020 as expectations for higher interest rates erode enthusiasm for stocks.
The broad U.S. stock index added 0.8%, while the Dow Jones Industrial Average was up less than 0.1%, or about 3 points. The tech-heavy Nasdaq Composite advanced 2.1%, chipping away at its recent losses.
Stocks...
The S&P 500 rose Monday but remained on track to close out its worst month since March 2020 as expectations for higher interest rates erode enthusiasm for stocks.
The broad U.S. stock index added 0.8%, while the Dow Jones Industrial Average was up less than 0.1%, or about 3 points. The tech-heavy Nasdaq Composite advanced 2.1%, chipping away at its recent losses.
Stocks have pulled back this month in volatile trading as investors have struggled to assess how quickly the Federal Reserve may withdraw monetary stimulus in response to heightened inflation and a tight labor market.
Investors expect that the reversal of easy-money policies designed to cushion the economy in the pandemic will weigh especially hard on technology stocks, which often trade at high valuations based on expectations for future growth.
The S&P 500 is down 6.4% in January, on pace for its worst month since early in the Covid-19 pandemic. The Nasdaq Composite is down 10% this month, putting it on course for its worst month since 2008.
“There has been extreme volatility so far this year,” said Louise Dudley, an equities portfolio manager at Federated Hermes. “People are particularly worried with the interest-rate expectations continuing to get higher. We’re definitely seeing from the U.S. that they’re very on top of the inflation numbers—they’re going to do everything they can.”
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Ms. Dudley said she expects that volatility will lessen as investors get more clarity over whether inflation has peaked and how companies expect to be impacted by higher prices for energy, labor and materials.
“Companies are managing at the moment to hit their expectations, but it’s the outlooks that have definitely got a big cautious question mark on them and people are worried about how much further some of these costs will go,” she said.
The Federal Reserve last week signaled it would begin raising interest rates in mid-March as it seeks to combat inflation. The expected shift away from rock-bottom rates has upended the preference of many investors for shares of expensive companies that promise strong future growth.
In recent, weeks, investors instead have favored cheaper stocks and shares of companies more closely tied to economic conditions. The Russell 1000 growth index has fallen 10% in January, while the Russell 1000 value index has declined 3.5%.
“Tech was just very highly valued, very overbought,” said Dustin Thackeray, chief investment officer at Crewe Advisors. “It was certainly due for a pullback.”
In individual-stock trading, Citrix Systems shares fell 3.8% as the cloud-computing company said it would be taken private in an all-cash acquisition valued at $16.5 billion.
Shares of L3Harris Technologies dropped 3.9% after the aerospace and defense company gave a downbeat revenue outlook.
In bond markets, the yield on the benchmark U.S. 10-year Treasury note ticked up to 1.793% from 1.779% Friday. Yields and prices move in opposite directions.
Overseas, the pan-continental Stoxx Europe 600 gained 0.8%. In Asia, markets were closed in China and South Korea for a holiday. Hong Kong’s Hang Seng and Japan’s Nikkei 225 each added more than 1%.
Macau Legend Development shares fell 19% in Hong Kong after media reports of the arrest of its chief executive over the weekend, on suspicion of money laundering and illegal gambling, including operating online casinos.
Write to Caitlin Ostroff at caitlin.ostroff@wsj.com and Karen Langley at karen.langley@wsj.com
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