Wall St set to retreat as traders await economic data for policy cues

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Wall St set to retreat as traders await economic data for policy cues © Reuters. FILE PHOTO: The New York Stock Exchange (NYSE) in New York City, U.S., February 24, 2022. REUTERS/Caitlin Ochs/File Photo

By Amruta Khandekar and Shristi Achar A

(Reuters) -Wall Street was set to open lower on Monday, as investors turned wary ahead of a slew of economic data this week that is likely to test the narrative about a cut in interest rates by the Federal Reserve early next year.

U.S. stocks kicked off December on an upbeat note, extending gains from the previous month that were driven by robust earnings and expectations that the Fed was done with its rate hiking campaign.

The benchmark S&P 500 registered its highest close of the year on Friday as remarks from Fed Chair Jerome Powell bolstered the peak rates view.

Traders have priced in the likelihood that the central bank will keep rates unchanged next week, with about 59% betting on rate cuts starting as soon as March 2024, according to the CME Group’s (NASDAQ:) FedWatch tool.

However, some analysts have cautioned that markets have been too quick to price in lower interest rates.

“It’s probably going to be more like the third quarter, because the Fed has told us multiple times that it’ll be high for longer and wants to make sure that inflation truly has been strangled,” said Sam Stovall, chief investment strategist at CFRA Research in New York, referring to the timing of the first rate cut.

However, Stovall said a Santa Claus rally is still possible as equities rebound from a likely mid-December low due to tax loss harvesting – a process in which investors sell underperforming stocks to lock in tax benefits.

A number of economic reports through the week will provide a gauge on the interest rate path as well as the potential for a “soft landing” – where the Fed manages to bring inflation under control while averting a recession.

Investors are awaiting readings on U.S. services sector activity and a survey on job openings, while November’s non-farm payrolls report is set to grab the spotlight on Friday.

Pressuring equities, Treasury yields edged higher on Monday after a sharp fall in the previous week.

Megacap growth stocks including Nvidia (NASDAQ:), Meta Platforms (NASDAQ:) and Apple (NASDAQ:) edged lower between 0.5% and 1% before the bell.

Also hurting sentiment on Monday were renewed fears about a widening of the war between Israel and Hamas after an attack on three commercial vessels in the southern Red Sea.

Fed officials have now entered a media blackout period before the interest rate decision on December 13.

Shares of Alaska Air (NYSE:) Group dropped 12.4% after the carrier said on Sunday it would acquire peer Hawaiian Holdings (NASDAQ:) for $1.9 billion, including debt. Hawaiian’s shares nearly tripled in value.

At 8:25 a.m. ET, were down 91 points, or 0.25%, were down 15.75 points, or 0.34%, and were down 68.5 points, or 0.43%.

Shares of cryptocurrency firms such as Coinbase (NASDAQ:) Global, Riot Platforms (NASDAQ:) and Marathon Digital (NASDAQ:) rose between 10% and 15% premarket, as bitcoin crossed $40,000 for the first time this year.

Uber (NYSE:) added 4.3% as the ride-hailing firm was set to join the , effective December 18.

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