Wall Street ends lowers as market expects Fed to hold rate steady

Wall Street finished lower on Monday after new services data increased the market’s expectations that the Federal Reserve would hold the interest rate steady at its upcoming policy meeting.

The Institute for Supply Management reported that the non-manufacturing purchasing managers’ index, which tracks activities of the services sector, declined to 50.3 in May from 51.4 the month before. Analysts projected that the services sector index would hit 52.2 last month.

Since the services sector accounts for two-thirds of the U.S. economy, analysts say the new data bolster a case for a pause in the Fed’s monetary tightening campaign.

“The bad news, meaning weak economic reports, is actually good news because it makes it more likely the Fed will pause its series of interest rate hikes, believing they have begun to do their trick bringing inflation down.”

Tim Ghriskey, Ingalls & Snyder senior portfolio strategist

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Investors now predict an 80 percent chance that the Fed will maintain the federal fund rate in the range of 5.00 to 5.25 percent. Last month, the U.S. central bank hiked the benchmark rate by a quarter of a percentage point.

Following the publication of the report, the Dow Jones Industrial Average closed at 33,562.86, declining by 199.90 points or 0.59 percent. The S&P 500, which tracks stocks of the top 500 U.S. companies, lost 8.58 points or 0.20 percent to end at 4,273.79. Meanwhile, the Nasdaq Composite concluded the trading session at 13,229.43, losing 11.34 points or 0.086 percent.

Seven of 11 S&P 500 sectors ended lower on Monday, with industrials being the worst performer by losing 0.71 percent in the session. The energy sector was the second worst sector in the session, recording a 0.58 percent loss.

U.S. bank stocks also generally traded lower on Monday amid heightened anticipation of large-scale bill issuance by the Treasury Department, worth more than $1 trillion. The S&P 500 banking index declined by nearly one percent for the session.

After the recent debt ceiling crisis, analysts have warned that the U.S. Treasury will replenish its Treasury General Account to raise funds to meet the country’s payment obligations.

According to analysts, the Treasury’s fundraising efforts will likely drain bank reserves even though banks need to have sufficient liquidity to manage the aftermath of the regional banking crisis from last March.

Shares of Apple fell by 0.76 percent to $179.58 after the tech company introduced an augmented-reality headset, Vision Pro. Analysts said the new product is Apple’s “riskiest and biggest bet” since iPhone.

Nvidia slid 0.40 percent to $391.71. The chipmaker rallied last week after reporting a higher-than-anticipated revenue forecast, saying that its artificial intelligence business contributed significantly to the revenue increase.

Updates on Treasury yields, oil

The weaker-than-anticipated services data also caused a decline in the U.S. Treasury market. The 10-year Treasury yield was at 3.70 percent on Monday, while the two-year yield plunged to 4.48 percent. The 30-year bond also yielded 3.89 percent.

Meanwhile, oil prices improved after Saudi Arabia announced on Sunday that it would further cut its oil production output by 1 million barrels a day per July. Last week, oil prices showed a significant decline because of reports of potential oversupply.

Saudi Arabia is the only country within the Organization of the Petroleum Exporting Countries (OPEC+) that has pledged to further increase its production cut. Other OPEC+ countries and allies have agreed to stick to the current production target throughout next year.

U.S. WTI crude futures rose to $71.84 a barrel on Monday. On the other hand, Brent crude futures fell slightly to trade at $76.42.