What’s driving markets

The Nasdaq Composite was leading a jittery stock market lower on Monday, as a big week for both corporate earnings and macroeconomic data got under way.

“What we are seeing here is investors getting cautious before the Fed announcement on Wednesday, and as major corporations report results tomorrow and the rest of the week,” said Peter Cardillo, chief market economist at Spartan Capital Securities, in a phone interview.

The Federal Reserve interest-rate decision will be coming Wednesday and nonfarm payrolls are set for release on Friday. The Fed is widely expected to deliver a 25-basis-point rate increase, downshifting from the outsize 50- and 75-basis-point increases seen last year. The Fed has signaled rates will top 5% and stay there, while markets have priced in cuts for the second half of 2023, setting up a potential clash.

Cardillo thinks the Fed will surprise with an increase of 50 basis points, but “hint at a tightening cycle” that is nearing an end, potentially as soon as March. Should that unfold, Cardillo said he expects both stocks and bonds to rally, paving the way for the S&P 500 to move up to 4,200.

“Monetary policy works with a lag, and we will likely be feeling the influence of higher rates of 2022 well into 2023,” said Matthew Miskin, John Hancock Investment Management’s co-chief investment strategist, in emailed commentary on Monday.

Miskin also warned that stocks have advanced to start the year, even through earnings estimates for the S&P 500 have been falling, causing the forward price-to- earnings ratio to reach its highest since August at 17.93x. “We see this valuation as a potential headwind and either looking for cheaper equity asset classes, or fixed income options, as attractive alternatives.”

Read:The Fed and the stock market are on a collision course this week. What’s at stake.

Also: Four ways Powell could tell markets the Fed isn’t ready to pivot

Tech giants Apple Inc.
AAPL,
-2.01%,
Alphabet Inc.
GOOGL,
-2.45%
and Amazon.com Inc.
AMZN,
-1.65%
highlight a huge slate of corporate earnings reports this week. Tech stocks in particular have rallied this month as bond yields have eased.

Also read: Could Big Tech layoffs keep growing? Apple, Amazon, Facebook and Google may give hints in biggest week of earnings.

The benchmark 10-year Treasury rate
TMUBMUSD10Y,
3.541%
was edging higher, above 3.5% on Monday, but off the roughly 4.2% high in October.

“Major central banks are set to hike policy rates again this week and keep them higher, counter to market views for cuts this year,” a BlackRock Investment Institute team led by Wei Li, global chief investment strategist, said in a Monday client note. “We see this as disconnect resolving and favoring higher rates.”

Companies in focus

SoFi Technologies Inc.
SOFI,
+12.46%
shares rallied 13.7% after the digital financial-services company exceeded expectations with its latest earnings and said that it expects to be profitable on a GAAP basis by the fourth quarter of this year.

Johnson & Johnson 
JNJ,
-3.70%
shares fell 3.9% Monday, after The Wall Street Journal reported that a federal appeals court rejected the consumer products and drugmaker’s move to place its talc liabilities into bankruptcy.

Ford Motor Co.
F,
-2.86%
said Monday that it would be “significantly increasing” production of its Mustang Mach-E in 2023 and lowering prices as the company continues its efforts to improve supply of its electric vehicles and cut back on customer wait times. Ford shares fell 2.89%.

Berenberg analyst Adrian Yanoshik turned bullish on Tesla Inc.
TSLA,
-6.32%
on Monday, citing improved valuation as concerns that Chief Executive Elon Musk will be distracted by his Twitter purchase have already been priced into the stock. Shares of the electric-vehicle maker were down 5%.

––Steve Goldstein contributed reporting to this article.