Futures of the S&P 500 Decline After the Index Achieved Its Seventh Record Close This Year

U.S. equities kicked off the week on a subdued note, retracing their steps after Federal Reserve Chair Jerome Powell emphasized in a televised interview that the central bank would proceed cautiously with rate cuts. Investor attention also shifted towards corporate earnings, particularly those of Dow constituents Caterpillar Inc. (CAT, +1.55%) and McDonald’s Corp. (MCD, -4.02%), following a surge in mega-cap tech earnings that fueled a stock market rally the previous week.

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Market Metrics:

• The Dow Jones Industrial Average (DJIA) witnessed a decline of 343 points, or 0.9%, settling at 38,311.
• The S&P 500 (SPX) experienced a dip of 30 points, or 0.6%, closing at 4,928.
• The Nasdaq Composite (COMP) fell by 111 points, or 0.7%, reaching 15,517.

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Last Friday, the Dow achieved its ninth record close for 2024, driven by robust performances from Meta Platforms Inc. (META, -3.04%) and Amazon.com Inc. (AMZN, -1.77%), contributing to the S&P 500 securing its seventh record close this year.

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Key Market Influencers:Stocks encountered a further decline following the Institute for Supply Management's report indicating an increase in its services index from 50.5% to 53.5%. While the index had experienced a drop in December to a seven-month low, the positive data may strengthen the expectation that the Federal Reserve will postpone rate cuts. Analysts suggest that the anticipation of rate cuts, initially projected for March, had already waned after Powell's recent indication that such a move was improbable.

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James Demmert, Founder and Chief Investment Officer of Main Street Research, pointed out that investors might have been overly optimistic about the Fed's aggressive rate-cutting stance. Demmert recommended a cautious approach, noting that a pause in the market was reasonable after a substantial rally. However, he advised investors to utilize downturns to diversify their portfolios. According to him, the focus should shift from the Fed to solid earnings, which have served as the fundamental underpinning of the market rally.

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Friday's release of robust U.S. payrolls data, revealing the creation of an unexpectedly high 353,000 jobs in January, further tempered expectations for swift rate cuts. Powell's interview exacerbated the subdued sentiment, coupled with mixed readings on purchasing managers' indexes for Europe, indicating sluggish growth.

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Bob Savage, Head of Markets Strategy and Insights at BNY Mellon, highlighted the day's emphasis on fourth-quarter earnings and the comparison of sentiment between big tech companies and more mainstream businesses. As per FactSet, 46% of S&P 500 companies have reported their quarterly results this earnings season, with the upcoming week anticipating reports from 104 S&P 500 companies, including four from the Dow.

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