Stocks Stumble as Investors Reassess Rate Cut Expectations

US stocks experienced a dip on Monday as investors reevaluated their views on potential interest rate cuts following a robust jobs report. This came ahead of a week filled with key inflation data and the start of the third-quarter earnings season.

Navigating the Shifting Tides of the Market

Stocks Slide Amid Fading Rate Cut Hopes

The Dow Jones Industrial Average (^DJI) fell 0.3% after reaching a new record high, while the S&P 500 (^GSPC) shed roughly 0.2%. The tech-heavy Nasdaq Composite (^IXIC) led the losses with a 0.4% drop. Investors' hopes for an outsized rate cut from the Federal Reserve have diminished after a better-than-expected September jobs report alleviated concerns about cracks in the labor market. The benchmark 10-year Treasury yield (^TNX) hit 4% for the first time since August, reflecting doubts about the Fed's next move.

Traders Adjust Expectations for Fed Action

Traders have abandoned last week's bets on a 0.50% rate cut in November and now see an 88% chance of a 0.25% move, according to the CME FedWatch Tool. These shifting expectations could weigh on stocks, which have rallied to record highs amid confidence in big rate cuts and an economic "soft landing." Investors are now eagerly awaiting the October consumer inflation report, due on Thursday, to gain insight into the Fed's progress in bringing down price pressures to its 2% target.

Earnings Season Takes Center Stage

The start of the third-quarter earnings season is also in focus, with Goldman Sachs (GS) raising its target for the S&P 500 and expecting higher margin growth for corporate companies. After Pepsi's (PEP) results on Thursday, the earnings season will kick into high gear on Friday with reports from major banks, including JPMorgan (JPM), Wells Fargo (WFC), and BlackRock (BLK).

Mixed Fortunes for 'Mag 7' Stocks

Among the "Magnificent Seven" stocks, Nvidia (NVDA) and Amazon (AMZN) were moving in opposite directions on Monday. Chip heavyweight Nvidia rose more than 1% to trade above $126 per share, while e-commerce and cloud giant Amazon fell more than 2% after Wells Fargo downgraded the stock to Equal-weight from Overweight, citing expectations of moderating advertising revenue.

Oil Prices Extend Gains

Oil prices continued their upward trajectory on Monday, with West Texas Intermediate crude futures (CL=F) advancing more than 1% to trade above $75 per barrel. Brent futures (BZ=F), the international benchmark, also gained more than 1% to trade above $79 per barrel. This follows the biggest weekly increase in oil prices in more than a year, as markets await a potential Israeli retaliation against Iran over its recent missile barrage.

Pfizer Stock Jumps on Starboard Stake

Pfizer (PFE) stock rose 2.6% in premarket trading on Monday as investors reacted to reports that activist investor Starboard Value has taken a $1 billion stake in the pharmaceutical giant. Starboard has reportedly approached Pfizer executives about helping to turn the company around, as it has struggled to maintain its dominance in the post-pandemic era. The stock's early morning gains will bring it into positive territory for the year, though it remains well below its record highs of nearly $60 in 2022.