Investing.com – Wall Street traded lower on Monday with the Dow falling back below the 21,000-point threshold as investors continued to digest that the Federal Reserve (Fed) was likely to tighten monetary policy next week.
At 11:06AM ET (16:06GMT), the Dow Jones fell 78 points, or 0.37%, the S&P 500 lost 13 points, or 0.56%, while the Nasdaq Composite traded down 40 points, or 0.68%.
After Fed chair Janet Yellen said Friday that a rate hike "would likely be appropriate" this month if employment and inflation continued to evolve in line with expectations, markets and experts have become convinced that the first policy tightening will occur at the March 14-15 policy meeting.
Fed fund futures are currently pricing in around an 82% chance of hike next week, according to Investing.com's Fed Rate Monitor Tool.
Analysts have also widely been penciling in a move. In its Global Economic Weekly report, Barclays said it now expects the Fed to hike rates at its March 14-15 meeting and again in September and December.
“As U.S. data have been solid but not exceptional, we believe the shift is driven by the improvement in financial conditions – specifically, the rally in equity markets – since the election, a rally that is evident to a greater or lesser degree in most major markets,” the report said.
UBS also said that Yellen’s speech convinced them to increase their expectations to three hikes this year in March, July and December.
Deutsche Bank also admitted that it was now looking for a move at this month’s meeting, stating that “the Fed has become less concerned about inflation, as the growth rate of the core PCE deflator (1.7%) is only a tenth below policymaker’s year end 2017 forecast.”
With the employment report out next Friday, economists at ING expect a “massive rebound” in wage growth. They forecast a 2.9% annual growth in average hourly earnings, even higher than the consensus estimate for 2.8%.
“That’ll be the icing on the cake for a March Fed hike,” they concluded.
Still, Rabobank warned that a dismal jobs report could stay the Fed’s hand.
“Note that in June 2016, markets had been prepared for a hike by the FOMC as well, but then one bad employment report only shortly before the meeting derailed that plan,” these analysts said.
Later on Monday, Minneapolis Fed president Neel Kashkari, one of the more dovish voting members at the U.S. central bank, will give a speech on the outlook at 3:00PM ET (20:00GMT).
In a light economic calendar, January factory orders rose 1.2%, beating expectations for a gain of 1.0%.
In company news, General Motors (NYSE:GM) grabbed headlines as the U.S. automaker confirmed its exit from the European market with the sale of its Opel division to PSA Group (PA:PEUP) for €2.2 billion euros ($2.3 billion).
Meanwhile, oil prices underwent choppy trade on Monday as market players continued to weigh the prospect of production cuts by major crude-producing nations against a rise in U.S. drilling.
U.S. crude futures lost 0.23% to $53.21 by 11:08AM ET (16:08GMT), while Brent oil inched up up 0.04% to $55.92.