By Lisa Pauline Mattackal and Pranav Kashyap
(Reuters) – U.S. stock indexes fell on Monday, weighed down by rising Treasury yields as markets backed off expectations of a Federal Reserve rate cut, while escalating conflicts in the Middle East kept traders on the sidelines.
US Treasury yields rose as investors reassessed the Fed's rate approach, with the yield on the 10-year note exceeding 4% for the first time in two months.
Investors are pricing in a more than 88% chance of a 25 basis point rate cut at the Fed's November meeting, according to CME's FedWatch tool, and about a 50 bps cut by the end of this year.
The yield spike casts a shadow over rate-sensitive megacap growth stocks. Alphabet (NASDAQ: ) lost 0.3%, Microsoft (NASDAQ: ) shed 0.3%, while Amazon (NASDAQ: ) fell nearly 3% after the Wells Fargo downgrade.
Points fell 142.64, or 0.34%, to 42,210.11, lost 15.00 points, or 0.26%, to 5,736.07 and 48.61 points, or 0.27%, to 18,089.24.
Rising regional conflicts in the Middle East have also hurt investor appetite. Early on Monday, Hezbollah rockets hit Israel's third largest city Haifa.
Wall Street's fear gauge, rose to 21.45, its highest level in more than one month. It ended at 20.95.
Ten of the 11 S&P 500 sectors were lower, with only energy stocks up 0.4%. Crude prices extended gains on concerns about supply disruptions from Middle East conflicts, boosting oil company shares.
“(The) concern that will keep people on the sidelines is related to higher energy prices in the near term, (the impact of) that inflation and production that has been declining rapidly (now) has become stronger,” said Art Hogan. , chief market strategist at B Riley Wealth.
Investors are eagerly awaiting consumer price index data, due on Thursday, as well as comments from several Fed officials, including Neel Kashkari and Raphael Bostic, who are due to speak throughout the week.
Third-quarter earnings for S&P 500 companies also begin this week, with several major banks scheduled to report on Oct. 11.
Earnings will be a key test for the Wall Street rally this year – the S&P 500 is up nearly 20% year-to-date and stands near a record high.
Goldman Sachs raised its 2024 year-end target for the S&P 500 to 6,000 from 5,600, and lowered its odds of a US recession to 15% from 20%.
Shares of Pfizer (NYSE: ) rose 3.1% on Monday after a report that activist investor Starboard Value took a roughly $1 billion stake in the drug giant.
Air Products & Chemicals (NYSE: ) was the S&P 500's top gainer on a report that activist hedge fund Mantle Ridge built a position in the company.
Bearish issues outnumbered advancers by a 2.33-to-1 ratio on the NYSE. There were 90 new highs and 10 new lows on the NYSE.
The S&P 500 posted a new 52-week high and no new highs, while the Nasdaq Composite recorded 44 new highs and 27 new lows.
