Wall Street dips as rate hike concerns remain

© Reuters. FILE PHOTO: Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., August 22, 2022. REUTERS/Brendan McDermid

By Chuck Mikolajczak

NEW YORK (Reuters) - U.S. stock indexes dipped on Monday, adding to last week's sharp losses, as concerns remained about the Federal Reserve's aggressive interest rate increases to fight inflation even if they result in an economic slowdown.

Fed Chair Jerome Powell said on Friday the U.S. economy would need tight monetary policy "for some time" before inflation is under control, dashing hopes the Fed might pivot to more subdued rate hikes after recent data suggested price pressures were peaking.

While the S&P 500 was on track for its biggest two-day percentage decline in 2-1/2 months, the benchmark index recovered from its worst levels of the day that saw it fall about 1% to a fresh one-month low.

"Investors realize that the Fed knows not much more about inflation than the rest of us so sure, Jay Powell is entitled to his opinion and his opinion probably matters more than a lot of other opinions but at the end of the day he is guessing the same way we are," said Jack Ablin, chief investment officer at Cresset Capital in Chicago.

"I don’t think his speech was the end of the world either, maybe we’re kissing and making up with the Fed."

Money market traders are pricing in a 72.5% chance of a 75-basis-point interest rate hike at the Fed's September meeting, which would be the third straight hike of that magnitude, and expect the Fed funds rate to end the year at about 3.7%.

Economic data this week is highlighted by the August nonfarm payrolls report due on Friday, with any signs of a slowdown in the labor market possibly taking pressure off the Fed to continue with outsized rate hikes.

Megacap technology and growth stocks such as Apple Inc (NASDAQ:AAPL), down 0.94%, and Microsoft Corp (NASDAQ:MSFT), off 0.91%, were among the biggest drags on the index as Treasury yields rose. [US/]

The two-year Treasury yield, which is particularly sensitive to interest rate expectations, briefly touched a 15-year high, while the closely watched yield curve measured by the gap between two and 10-year yields remained firmly inverted. [US/]

An inversion is considered by many to be a reliable signal of a looming recession.

The Dow Jones Industrial Average fell 24.21 points, or 0.07%, to 32,259.19, the S&P 500 lost 4.61 points, or 0.11%, to 4,053.05 and the Nasdaq Composite dropped 59.30 points, or 0.49%, to 12,082.41.

The CBOE's volatility index, Wall Street's fear gauge, hit a seven-week high of 27.67 points.

The benchmark S&P 500 index has climbed nearly 11% since mid-June through Friday's close and recently found support just above its 50-day moving average, although it remains well below it's 200-day moving average. Despite the rebound, some investors remain worried as September approaches due to the historical weakness for stocks during the month and the anticipated hike from the Fed.

Energy stocks, up 2.57%, were a bright spot, as crude prices jumped about 4% on a possible OPEC+ output cuts and conflict in Libya. [O/R]

Bristol Myers (NYSE:BMY) Squibb slid 5.96% after its drug candidate for preventing ischemia strokes missed the main goal in a mid-stage trial.

Declining issues outnumbered advancing ones on the NYSE by a 1.40-to-1 ratio; on Nasdaq, a 1.64-to-1 ratio favored decliners.

The S&P 500 posted two new 52-week highs and 22 new lows; the Nasdaq Composite recorded 22 new highs and 180 new lows.