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 has retreated 5.9% in volatile trading in January as investors wrestle with the question of how tighter monetary policy would influence equity valuations. High inflation and a strong labor market have led Federal Reserve officials to accelerate their plans for unwinding support for the economy.
Investors credit the central bank’s near-zero short-term interest rates and program of bond-buying with helping fuel the stock market’s epic run from its March 2020 lows. Even after pulling back in recent weeks, the S&P 500 is trading at about double its closing low that month.
On the final trading day of January, the S&P 500 advanced 1.1%, while the Dow Jones Industrial Average gained 0.6%, or about 200 points. The tech-heavy Nasdaq Composite advanced 2.3%, chipping away at its recent losses.
Technology stocks have slumped this month as investors consider how rising interest rates could weigh especially hard on the group’s pricey valuations, which are based in part on expectations for growth far into the future.
The Nasdaq Composite is down 10% this month, which would make January its worst month since March 2020.
“Tech was just very highly valued, very overbought,” said
chief investment officer at Crewe Advisors. “It was certainly due for a pullback.”
Trading in January has been characterized by big days both up and down.
“There has been extreme volatility so far this year,” said
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.”
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.
Among individual stocks, shares of
jumped 9.7% after a ratings upgrade from
and share purchases by Co-Chief Executive
shares fell 3.6% as the cloud-computing company said it would be taken private in an all-cash acquisition valued at $16.5 billion.
dropped 4.1% 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 were roughly flat from Friday at 1.779%. Yields and prices move in opposite directions.
Overseas, the pan-continental Stoxx Europe 600 gained 0.7%. 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%.
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.
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