Market Analysis

Wall Street's three major indices closed about 1% lower on Monday, with Treasury yields climbing as investors adjusted their expectations for Federal Reserve interest rate cuts and grew concerned about the impact of the Middle East conflict on oil prices.

As traders awaited the upcoming earnings season and new economic data, they also braced for Hurricane Milton, which is expected to strike the U.S. this week. The country is still recovering from the devastation caused by Hurricane Helene, a Category 4 storm that claimed over 200 lives across six states.

Adding to the market's negative mood was a U.S. court order requiring Alphabet's (NASDAQ) Google to restructure its mobile-app business to offer more options to Android users. Negative analyst reports also led to selling in shares of Amazon.com (NASDAQ) and Apple Inc. (NASDAQ).

After Friday’s stronger-than-expected jobs report, traders significantly reduced their bets for a 50-basis-point rate cut in November, now seeing an 86% chance of a smaller 25-basis-point cut and a 14% chance of no cut at all, according to the CME's FedWatch tool.

The shift in expectations triggered a rise in U.S. Treasury yields, with the benchmark 10-year note climbing above 4% for the first time in two months.

Looking ahead, investors are focusing on next month's Fed meeting, along with key economic indicators such as the Consumer Price Index (CPI) for September and the start of third-quarter earnings, with banks set to report later this week.

"It's a combination of factors from the past few days: the jobs report, hurricane damage, elevated energy prices, and negative sentiment toward some major tech stocks," said Michael James, managing director of equity trading at Wedbush Securities in Los Angeles. "The Google news in the final hour just tipped the scales toward more aggressive selling."

James also noted the growing concerns among U.S. investors about the economic fallout from the Middle East conflict, particularly rising oil prices.

The geopolitical tension escalated on Monday, with Hezbollah launching rockets at the Israeli city of Haifa, while Israeli forces seemed prepared to expand ground operations in southern Lebanon. Investors are closely watching for how Israel may respond to recent missile strikes from Iran.

The Dow Jones Industrial Average fell by 398.51 points, or 0.94%, to close at 41,954.24. The S&P 500 dropped 55.13 points, or 0.96%, to 5,695.94, and the Nasdaq Composite declined 213.94 points, or 1.18%, to 17,923.90.

The CBOE Volatility Index, Wall Street's "fear gauge," jumped by 3.4 points to 22.64, marking its largest single-day increase in over a month and its highest close since August 8.

Of the 11 major sectors in the S&P 500, only the energy sector posted gains, rising by 0.4%, driven by a 3.7% jump in U.S. crude prices as Middle East supply concerns persisted.

The biggest laggards were utilities, down 2.3%, followed by communications services, which was dragged lower by a 2.5% decline in Alphabet’s shares.

Apple was the largest single stock drag on the S&P 500, falling 2.3% after Jefferies initiated coverage with a "hold" rating. Amazon.com shares dropped 3% following a downgrade from Wells Fargo.

One of the top gainers was Generac Holdings (NYSE), which surged 8.52% as investors anticipated strong demand for backup generators ahead of the incoming hurricane.

Pfizer (NYSE) saw a 2% rise following news that activist investor Starboard Value had acquired a $1-billion stake in the company.

Meanwhile, Air Products and Chemicals (NYSE) soared 9.5% after reports surfaced that activist hedge fund Mantle Ridge had taken a position in the firm.

On the New York Stock Exchange, declining stocks outnumbered advancing ones by a 2.73-to-1 ratio, with 222 stocks hitting new highs and 55 hitting new lows.

On the Nasdaq, 1,292 stocks rose, while 2,988 declined, with a 2.31-to-1 ratio of decliners to advancers. The S&P 500 recorded 34 new 52-week highs and two new lows, while the Nasdaq logged 83 new highs and 118 new lows.

Overall, trading volume on U.S. exchanges reached 11.39 billion shares, compared to the 20-day average of 12.06 billion.

Paraphrasing text from "Reuters" all rights reserved by the original author.