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U.S. markets broadly lower Monday, adding to recent losses after Fed chairman's inflation speech

Stocks closed broadly lower on Wall Street Monday, adding to their hefty losses from last week when the U.S. Federal Reserve pledged to keep interest rates high as long as it takes to tame inflation.

The market is coming off its worst weekly pullback since mid-June

Traders work on the floor at the New York Stock Exchange on July 1. Stocks are opening lower on Wall Street as markets turn cautious ahead of earnings reports from big U.S. companies starting this week and more reports that will show how badly inflation is hitting American businesses and households. (Seth Wenig/The Associated Press)

Stocks closed broadly lower on Wall Street Monday, adding to their hefty losses from last week when the Federal Reserve pledged to keep interest rates high as long as it takes to tame inflation.

The S&P 500 fell 0.7 per cent after wavering between small gains and losses. The Dow Jones Industrial Average fell 0.6 per cent and the Nasdaq composite lost one per cent. Smaller company stocks also fell, pulling the Russell 2000 0.8 per cent lower.

The selling was widespread, with technology and health care stocks among the biggest weights on the market. Only energy and utilities stocks rose.

The market is coming off its worst weekly pullback since mid-June after Fed chief Jerome Powell indicated on Friday that the central bank will raise rates into next year and keep them elevated as it tries to quell demand and bring down prices for goods and services.

The open-endedness implied by how long the Fed may have to keep raising rates has, for now, quieted speculation on Wall Street that recent data showing more moderate inflation would prompt the central bank to act less aggressively.

"We're in this period where you're going to see volatility be more of the norm versus the exception and will probably continue until, frankly, inflation gets under control and that then sets the motion for the Fed to become a little bit more dovish," said Terry Sandven, chief equity strategist at U.S. Bank Wealth Management.

The Fed's last two hikes have been by 0.75 points, and Wall Street is expecting a third such increase in September, according to CME Group.

Some investors had hoped that the Fed would ease up on rate hikes into next year if inflation subsides. That sentiment led to a rally for stocks in July and early August.

Federal Reserve chairman Jerome Powell speaks during a news conference in Washington, on July 27. On Friday, Powell said the Fed will likely impose more large interest rate hikes in coming months to tame record-high inflation. (Manuel Balce Ceneta/The Associated Press)

On Monday, the S&P 500 fell 27.05 points to 4,030.61. The benchmark index fell 3.4 per cent Friday, its biggest single-day drop since mid-June.

The Dow dropped 184.41 points to 32,098.99, while the Nasdaq slid 124.04 points to 12,017.67. The Russell 2000 gave up 16.89 points to 1,882.94.

Technology stocks, among the biggest decliners so far this year, led the way lower. Apple fell 1.4 per cent.

Health-care stocks also lost ground. Drug delivery technology company Catalent slumped 7.4 per cent for the biggest drop in the S&P 500 after giving investors a disappointing revenue forecast.

Energy stocks made gains as U.S. crude oil prices rose 4.2 per cent. Exxon Mobil rose 2.3 per cent.

Investors have been closely watching economic reports to get a better sense of how much the economy is slowing and whether inflation is starting to cool from the hottest levels in four decades.

The Fed's preferred gauge of inflation decelerated last month, while other data shows consumer spending slowed. Wall Street will get several more updates on the economy this week.

The U.S. federal government will release its closely watched monthly jobs report on Friday. The employment market has remained resilient amid a broader slowdown for the economy. That has helped temper worries that the U.S. is facing a potential recession.

A person stands in front of an electronic stock board showing Japan's Nikkei 225 index at a securities firm Monday in Tokyo. Asian shares declined Monday after the head of the U.S. Federal Reserve indicated high interest rates will continue for some time to curb inflation. (Eugene Hoshiko/The Associated Press)

The message from Federal Reserve chair Jerome Powell in a speech Friday had been expected, though some hoped it would be less emphatic.

"The market apparently was looking for something a little more neutral. After all the talk of a 'pause' and 'pivot,' none of which ever made any sense with a Fed that has said several times it will keep hiking rates even if it means some economic pain, we are back to Square 1 with a Fed outlook to keep tightening," said Clifford Bennett, chief economist at ACY Securities.

"The Fed was always going to keep raising rates aggressively, but the market decided to price in a slowing in hikes, and even a reversal."

European markets also closed lower and Asian markets closed lower overnight. Chinese economic data showing a drop in industrial profits indicated that a strong recovery there will take time, amid fresh COVID-19 restrictions.

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