The Dow Jones Industrial Average fell 170 points, or 0.5%, while the S&P 500 and Nasdaq Composite fell 0.5% and 0.4%, respectively. Tesla shares fell on reports of production cuts at its Shanghai plant, while Macau-linked casino shares gained on hopes of an easing of Covid-19 restrictions. Investors are eyeing the Federal Reserve’s interest rate decision next week at the end of the central bank’s December policy meeting. After a speech last week by Fed Chairman Jerome Powell, markets largely expect the central bank to approve a 0.5 percentage point rate hike. That would mark a step down from a run of four consecutive increases of 0.75 percentage points. However, Powell also said the “terminal rate,” or the point where the Fed stops raising, will likely “need to be somewhat higher” than indicated at the September meeting. That could mean a Fed Funds rate ending up above 5%, from the current target range of 3.75%-4%. Friday’s nonfarm payrolls report added to the Fed’s anxiety in the market. Average hourly earnings rose 0.6% in November, twice the Dow Jones estimate, and the 12-month increase was 5.1%, half a percentage point above expectations. Wage pressures on inflation could force the Fed into an even more hawkish stance. Wall Street is coming off its second straight positive week, with the S&P 500 and Nasdaq up 1.1% and 2.1%, respectively. The Dow rose 0.2% last week. Despite the recent rally, Morgan Stanley strategist Mike Wilson said the stock’s risk-reward has likely peaked as it approaches the bank’s initial tactical target range of 4,000 to 4,150. “As suggested two weeks ago, for this tactical rally to lift, interest rates will need to be cut,” he said in a note to clients on Monday. “Fast forward to today and that’s what happened. However, we are now right at our initial bullish targets and recommend a win before Bear makes a serious comeback.” Investors await a series of economic data reports this week, starting with the November ISM services data due at 10am. ET. Economists polled by the Dow Jones had expected a reading of 53.7.
