Equities took a break Monday from their recent red-hot run after Fed Chief Jerome Powell pushed back on expectations for interest rate cuts coming in the first half of 2024.
The broader market ended last week at record levels, boosted by a blowout jobs report and better-than-expected quarterly earnings from the likes of Magnificent 7 stocks such as Meta Platforms (META) and Amazon.com (AMZN), among others.
But the Fed chair's comments Sunday night on CBS's 60 Minutes further dashed hopes that the central bank's rate-setting committee would begin easing anytime soon.
"Markets are stumbling today after Fed Chief Jerome Powell’s 'higher-for-longer' reiterations in a 60 Minutes interview last night," writes José Torres, senior economist at Interactive Brokers. "Significantly, Powell's hawkish message was recorded before Friday's blockbuster jobs number, which points to a Fed committee that’s increasingly tilting to the hawkish side."
U.S. nonfarm payrolls increased by 353,000 in January, the Bureau of Labor Statistics said Friday, easily topping economists' estimate for the creation of 185,000 jobs. The surprisingly strong jobs report already all but eliminated the chance of the Fed enacting its first quarter-point rate cut in March, experts said. But Powell's remarks Sunday night still led market participants to recalibrate their models.
"We pushed back our forecast of the first cut from March to May but continue to expect five cuts in 2024 (May, June, July, September and December), and three more in 2025," wrote Jan Hatzius, chief economist at Goldman Sachs.
Interest rate traders currently assign an 85% probability to the Federal Open Market Committee (FOMC) keeping rates unchanged at the next Fed meeting in March. Odds of the first quarter-point cut coming at the Fed's May meeting stand at 55%, according to CME Group's FedWatch Tool.
In the good-news-is-bad-news department, U.S. service sector growth accelerated in January, the Institute for Supply Management said Monday. Not only was the reading well above economists' consensus forecast, but it was the strongest print since September 2023. The downside?
"The stronger-than-expected ISM-Services print underscored Powell's statements about the risks of a potential increase in inflation, with the data showing prices expanding faster than a cheetah, fueled in part by robust consumer demand," writes Interactive Brokers' Torres.
Earnings in focus
With little in the way of economic news on the docket in the days ahead, market participants are keying in on the earnings calendar. Among the names making news on that front Monday were several top-rated Dow Jones stocks. Caterpillar (CAT) stock, for one, rallied further into record territory after the world's largest maker of heavy construction and mining equipment posted upbeat fourth-quarter results.
Elsewhere in the Dow, shares in McDonald's (MCD) fell 3.7% after reporting mixed quarterly results. In non-earnings news, Dow stock Boeing (BA) continued its decline (-1.3%) after the aerospace giant said it found manufacturing issues with 50 undelivered 737 planes.
At the closing bell, the blue-chip Dow Jones Industrial Average was off 0.7% at 38,380, while the broader S&P 500 shed 0.3% to 4,942. The tech-heavy Nasdaq Composite slipped 0.2% to 15,597.
Nvidia hits $1.712 trillion in market value
The tech sector and communications services stocks fell broadly in Monday's retreat, and yet shares in everyone's favorite way to bet on the generative AI future continued to hot record highs.
Nvidia (NVDA) stock gained 4.8% after Goldman Sachs analysts lifted their price target and reiterated their Buy recommendation on the name.
"We no longer assume a drop off in Data Center revenue in the second half of calendar 2024 and instead model consistent growth through first half calendar 2025, driven by continued spending on Gen AI infrastructure by the large cloud service providers, a broadening customer profile, and multiple new product cycles," writes the Goldman Sachs team led by analyst Toshiya Hari.
With a new price target of $800, Goldman Sachs gives NVDA stock implied price upside of about 16% in the next 12 months or so. Wall Street's average price target stands at $679.64, according to S&P Global Market Intelligence, ranging from a high of $1,000 to a low of $410.
Nvidia stock has more than tripled over the past 52 weeks, solidifying its position as one of the best stocks of the past 30 years. And anyone who put $1,000 into NVDA a couple of decades ago would be thrilled with the results today, too.
Nvidia added $78 billion in market capitalization on Monday to bring it to $1.712 trillion. That's only about $50 billion less than the market value of Amazon.
