Dow books biggest drop in more than two weeks after report about Apple’s plans to slow hiring, spending

What drove markets

A Bloomberg report about Apple’s plan to slow hiring and spending growth was the most likely reason that the stock market shifted into a selloff mode on Monday afternoon, according Dan Eye, chief investment officer of Fort Pitt Capital Group in Harrisburg, Pa. Shares of Apple AAPL finished down by 2.1% after the report.

“Investors are really questioning optimistic earnings forecasts for the rest of this year and into 2023,” Eye said via phone. “We are going to need to get our arms around what earnings are going to look like in coming quarters and that’s going to depend on guidance.”

Earlier on Monday, investors had been focused on positive elements within the quarterly results of Goldman Sachs Group Inc. and Bank of America Corp.

Goldman
GS,
+0.00%
shares closed up by 2.5% after the investment-banking giant posted a stronger-than-expected second-quarter profit, although earnings fell from the year-ago quarter. Bank of America
BAC,
-1.38%
shares finished marginally higher after the bank fell short of Wall Street’s profit estimate, but revenue matched expectations and net interest income beat.

The first full week of the U.S. second-quarter earnings season is getting under way, with [
IBM,
+0.10%
delivering better-than-expected results after the closing bell. ]

Reports from other big banks, such as JPMorgan Chase
JPM,
-1.22%,
were not initially well-received last week. But the market mood brightened by Friday and the early part of Monday after Federal Reserve officials talked down the prospects of a 100-basis point rate hike at next week’s policy meeting.

See also: Investors are obsessed with size of Fed’s next rate hike. Here’s what they’re missing.

The chances of such a sharp tightening are now around 33%, compared with 80% last Wednesday, and a 75 basis point move to 2.25% to 2.50% is baked in. The dollar index
DXY,
-0.23%
eased from 20-year highs in response, falling 0.6% to 107.44.

Traders had been watching to see if upside momentum would continue after a strong finish last week.

“Bullish momentum in equities has been elusive this year, but Thursday was conspicuous in that both the stock market and crude oil made multiweek or multi-month lows before reversing to close near their highs of the day, and then followed through to the upside on Friday,” Chris Larkin, managing director of trading at E-Trade from Morgan Stanley, said in emailed comments.

“Whether that momentum will carry into this week — or longer — remains to be seen. Though in the past, when the SPX has made similar pullbacks, it was higher one week later more time than not,” he said.

Read: Why this ugly S&P 500 streak cautions against chasing bear-market bounces

The Fed, however, is unlikely to relent on its aggressive rate-hike pace, especially against a backdrop of a strong labor market and resilient corporate and consumer spending, he said. Longer term, “stagflation could be on the docket.”

Aside from earnings, it’s likely to be a quiet week for U.S. macroeconomic catalysts, with the Fed now in the premeeting blackout period and investors possibly turning their attention elsewhere.

“We see the ECB (European Central Bank) raising rates by 0.25% this week amid high inflation and despite recession fears,” Wei Li, BlackRock Investment Institute’s global chief investment strategist, and others wrote in a note Monday.

“Both the ECB and Fed are for now pandering to `the politics of inflation,’ or pressure to tame inflation. We think the ECB will pause its hiking first,” they said. “Why? The energy crisis means Europe’s growth is likely to stall soon. Higher rates and political turmoil may also send peripheral borrowing costs spiraling. All this leaves us favoring credit over stocks and neutral on euro area government bonds.”

Companies in focus

• Shares of Dow component Boeing Co.
  BA,
  +0.52%
  finished marginally lower after the aerospace and defense giant said Delta Air Lines Inc.
  DAL,
  +2.46%
  would order 100 of its 737-10 jets as the air carrier modernizes its single-aisle fleet. Delta shares finished up by 3.5%.

• Elon Musk filed a motion Friday opposing Twitter Inc.’s
  TWTR,
  +0.99%
  request to expedite a trial over his intention to terminate his $44 billion takeover. Twitter shares closed up by 1.8%.

How other assets fared

• U.S. oil prices settled back above $100 a barrel on Monday for the first time in a week, benefiting from signs that U.S. President Joe Biden had not secured an immediate increase in Saudi Arabian supply. West Texas Intermediate crude for August delivery rose $5.01, or 5.1%, to settle at $102.60 a barrel on the New York Mercantile Exchange. 

• The 10-year Treasury yield
  TMUBMUSD10Y,
  2.758%
  rose 3 basis points to 2.959%, the highest level in a week, based on 3 p.m. levels from Dow Jones Market Data. Yields and debt prices move opposite each other.

• The ICE Dollar index
  DXY,
  -0.23%
  fell 0.6%, helping to inspire gains for gold. August gold gained $6.60, or 0.4%, to settle at $1,710.20.

• Bitcoin
  BTCUSD,
  -0.78%
  advanced 2.9% to 21,551.

• In Europe, the Stoxx 600 XX:SXXP and FTSE 100
  UKX,
  +0.57%
  each finished up by 0.9%.

• Asia markets got an added lift from signs the Chinese authorities will look to support the construction sector and ease monetary policy. Hong Kong’s Hang Seng
  HSI,
  -0.77%
  finished 2.7% higher and the Shanghai Composite
  SHCOMP,
  +0.31%
  closed up by 1.6%. Japan was shut for a holiday.

–— Jamie Chisholm contributed to this article.