People walk past the New York Stock Exchange on Wall Street and the ‘Fearless Girl’ statue. T— AFP
NEW YORK: Stock indexes mostly dipped on Monday, while U.S. Treasury 10-year yields touched 14-month highs as a resilient US economy and persistent inflation prompted investors to weigh the possibility that the Federal Reserve may pause its easing cycle.
The U.S. dollar index hit its highest level in more than two years. The Nasdaq fell, while the benchmark S&P 500 bounced off a two-month low to finish with a slight gain.
Investors anxiously await Wednesday's U.S. Consumer Price Index reading. Any upside surprises could feed fears that the Fed may pause its rate cuts. A Reuters poll of economists gives a median forecast for an annual rise of 2.9%, up from November's 2.7%, and for a monthly increase of 0.3%.
U.S. producer prices data is due on Tuesday.
On Friday, the December employment report showed 256,000 workers were added to U.S. nonfarm payrolls, the biggest increase since March and well above expectations for a rise of 160,000.
Investors also worry whether inflation could pick up as a result of policies on tariffs, migration and taxes of U.S. President-elect Donald Trump's incoming administration.
Markets are pricing in about 27 basis points of cuts from the Fed this year, with a 52.9% chance for a June cut.
"It'll be touch and go for the next couple of days until we get the inflation news out of the way," said Peter Cardillo, chief market economist at Spartan Capital Securities in New York.
"The Fed has become more hawkish at this time," and investors are considering the possibility that the U.S. may have seen the end of rate cuts for now, Cardillo added.
The next Fed policy meeting is scheduled for Jan. 28-29.
The benchmark 10-year note yield touched a 14-month high of 4.805% and was last up 1.6 basis points at 4.79%.
On Wall Street, the Dow Jones Industrial Average rose 358.67 points, or 0.86%, to 42,297.12, the S&P 500 rose 9.18 points, or 0.16%, to 5,836.22 and the Nasdaq Composite fell 73.53 points, or 0.38%, to 19,088.10.
MSCI's gauge of stocks across the globe also fell 2.07 points, or 0.25%, to 831.79. The STOXX 600 index dropped 0.55%.
The fourth-quarter U.S. earnings reporting season also gets under way this week with results expected from some of the biggest U.S. banks including JPMorgan Chase.
"The question investors are grappling with is what's more important - strong corporate earnings, which come from a strong economy, or lower inflation, which comes from a weaker economy," said Oliver Pursche, senior vice president, advisor for Wealthspire Advisors in Westport, Connecticut.
"Most investors would prefer a strong economy with slightly elevated inflation," he said.
Helping both the Dow and S&P 500 was a 3.9% gain in UnitedHealth Group shares, President Joe Biden's administration proposed 2026 reimbursement rates for Medicare Advantage plans run by private insurers, which would result in a 2.2% increase in payments.
The dollar index, which measures the greenback against a basket of currencies, rose 0.26% to 109.94. Earlier in the session it rose to its highest in more than two years, peaking at 110.17 and adding to its recent rally.
The euro was down 0.23% at $1.022. Against the Japanese yen, the dollar weakened 0.03% to 157.64.
A jump in energy prices added to investor unease over inflation.
Oil prices climbed about 2% to a four-month high as traders expected wider U.S. sanctions on Russian oil would force buyers in India and China to seek other suppliers.
U.S. crude rose $2.25 to settle at $78.82 a barrel and Brent rose to $1.25 to settle at $81.01.
With the dollar gaining, gold fell 0.9% to $2,664.49 per ounce. Gold generally struggles to compete for investor cash in a high-yield, high-dollar environment. (Reporting by Caroline Valetkevitch in New York; additional reporting by Amanda Cooper in London; Editing by Ed Osmond, Will Dunham, Richard Chang and David Gregorio)
