U.S. stocks closed with mixed results on Monday, with the Nasdaq dropping as investors sold tech stocks amid expectations for few to no Federal Reserve rate cuts this year after Friday's strong jobs data pointed to a still strong economy.
Bank of America economists have erased their rate cut expectations and now see a rate hike as the more likely next move.
"Inflation is above target and the Fed was primarily cutting to ensure a strong labor market, which has been met," they said in a note. "This means no further cuts needed," adding they "see risks for the next Fed move more skewed to a hike versus cut."
The benchmark S&P 500 hit a two-month low as bond yields surged on views the Fed will keep interest rates higher for longer this year. But by the end of the day, the broad S&P 500 index clawed back its losses to close up 0.16%, or 9.18 points, at 5,836.22, and the blue-chip Dow added 358 points, or 0.9%, to 42,297.
Only the tech-heavy Nasdaq ended down 0.38%, or 73.53 points, to 19,088.10. Tech companies generally rely more heavily on borrowing to fuel their growth, and higher rates could curb that.
The benchmark 10-year yield was last up at 4.79%, hitting its highest level since late 2023.
Chip stocks also weigh on Nasdaq
Chip darling Nvidia lost ground after President Joe Biden's administration proposed new U.S. chip export curbs .
In an attempt to thwart China's advance in artificial intelligence (AI) and protect national security, the U.S. said it wants to cap how many advanced AI chips can be exported to certain countries. Eighteen key allies and partners would be exempt, it said.
Companies decried the plan, with Ned Finkle, Nvidia vice president of government affairs, calling the proposal "misguided," and saying it "threatens to derail innovation and economic growth worldwide."
The proposal has a 120-day comment period, which would run into the start of President-elect Donald Trump's term. Trump's inauguration is Jan. 20.
"We look forward to a return to policies that strengthen American leadership, bolster our economy and preserve our competitive edge in AI and beyond," Finkle said.
Shares of Nvidia ended down 1.97% at $133.23.
Oil prices jump
Oil prices rose for a third consecutive session, with Brent crude rising above $80 a barrel to its highest in more than four months on wider U.S. sanctions on Russian oil that could push India and China to buy more oil from the Middle East, Africa and the Americas, boosting prices and shipping costs, analysts said.
On Friday, the U.S. Treasury imposed new sanctions on producers including Gazprom Neft and Surgutneftegaz, and183 vessels that have shipped Russian oil, targeting revenue Moscow has used to fund its war with Ukraine.
Will stocks continue heading lower?
If bond yields continue to rise quickly, stocks could remain under pressure, analysts said. Higher interest rates make borrowing more expensive and slow economic growth and make bonds and other fixed-income assets attractive to compete with stocks for investment money.
However, some analysts aren't throwing in the towel on stocks just yet.
"On a short-term basis, the market has shifted back to a good-news-is-bad-news backdrop," said Adam Turnquist, chief technical strategist for LPL Financial. "However, it is important to remember that, in the long term, good economic news is usually good for equity markets as it implies better-than-expected growth, upside potential to earnings, and reduced recession risk."
This week, investors will get their first glimpse of how well companies can hold up against higher rates. Six of the largest U.S. banks report beginning Wednesday.
"Banks tend to have their collective finger on the corporate and consumer environment and can provide a firsthand look at demand for loans, credit card usage, credit quality, and other important underpinnings of the economy," Charles Schwab said in a market report. "Also, bank CEOs can offer their raw assessment of the current climate and outline the challenges and opportunities ahead, including possible assessments of how new policies from the incoming U.S. administration might affect trends like mergers and acquisitions."
Other movers
Other stocks with big moves Monday include:
This story has been updated with additional information.
Medora Lee is a money, markets, and personal finance reporter at USA TODAY. You can reach her at mjlee@usatoday.com and subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday morning.
This article originally appeared on USA TODAY: Nasdaq ends down on tech selling before possible end to rate cuts
