Wall Street was set to open lower on Monday, with the tech-focused Nasdaq futures dropping more than 1%, at the start of the busiest week of the earnings season and ahead of key central bank meetings.
The U.S. Federal Reserve is seen hiking the Fed funds rate by 25 basis points (bps) at the end of its two-day policy meeting on Wednesday, close on the heels of economic reports showing signs of slowing demand and cooling inflation.
This will likely be the smallest rate increase since the Fed kicked off its tightening cycle 10 months ago with a 25 bps hike, with financial markets pricing in a final rate hike in March.
“The Fed’s going to continue to err on the side of caution with respect to inflation because of the fact that it still remains well above the 2% target … we’re seeing signs that inflation may be coming down, but it’s still not low enough,” said Adam Sarhan, chief executive of 50 Park Investments in New York.
Money markets now see rates peaking at 4.9% in June, still below the 5% level expected by Fed policymakers.
After a slew of layoffs by large-cap tech and financial firms through the month, investors will now watch out for the Labor Department’s January nonfarm payrolls data expected on Friday.
A total of 107 S&P 500 firms are expected to report quarterly earnings this week including heavyweight growth companies Apple Inc (AAPL.O), Amazon.com Inc (AMZN.O), Alphabet Inc (GOOGL.O) and Meta Platforms Inc (META.O), all down about 1% each in premarket trading.
Analysts expect S&P 500 earnings during the fourth-quarter to decline 2.9%, compared with the 1.6% drop expected at the beginning of the year, according to Refinitiv data as of Friday.
Data reflecting cooling inflation and a slowing economy has raised hopes among investors that the Fed might steer away from its hawkish rhetoric, stoking interest in growth stocks this month, with the S&P 500 Growth index (.IGX) recouping more than half its monthly losses from December.
Tighter monetary policies have stood in the way of business expansion of growth firms, which have also been pressured for much of last year by high Treasury yields.
Wall Street is expected to end the month higher with the tech-inclined Nasdaq (.IXIC) and the benchmark S&P 500 (.SPX) recovering December losses.
“The month of January was a big ‘up-month’ on Wall Street, led mostly by many of the big stocks that got crushed last year,” Sarhan added, noting that the decline in growth stocks on Monday could be due to some profit-taking.
At 8:48 a.m. ET, Dow e-minis were down 157 points, or 0.46%, S&P 500 e-minis were down 32.5 points, or 0.8%, and Nasdaq 100 e-minis were down 138 points, or 1.13%.
Other major central banks including the European Central Bank and the Bank of England are also seen raising interest rates later in the week.