Wall Street loses more ground, extending a losing streak

Wall Street started off the week with more losses for stocks Monday, as investors brace for higher interest rates from central banks to fight inflation.

The S&P 500 fell 0.9%, with most of the sectors in the benchmark index closing in the red. The Dow Jones Industrial Average fell 0.5% at the Nasdaq composite lost 1.5%. Small company stocks also fell, pulling the Russell 2000 1.3% lower.

The latest wave of selling extends the major indexes’ losing streak to a fifth day. Each index posted a weekly loss the past two weeks.

Markets have been slumping as hopes for a gentler Federal Reserve vanish amid stubbornly hot inflation. The central bank last week raised its forecast of how long interest rates have to stay elevated to cool inflation that has been hurting businesses and threatening spending. The European Central Bank also warned that more rate hikes are coming.

Communications services stocks, technology companies and retailers were among the biggest losers Monday. Disney slid 4.8%, Microsoft fell 1.7% and Home Depot dropped 1.9% lower.

Facebook’s parent company fell 4.1% after the European Union accused the company of breaching antitrust rules by distorting competition in the online classified ads business.

U.S. crude oil prices rose 1.2%. That helped boost some energy stocks. Marathon Petroleum gained 1.2%.

All told, the S&P 500 fell 34.70 points to 3,817.66. The index is down about 20% this year with less than two weeks left in 2022.

The Dow dropped 162.92 points to 32,757.54, while the Nasdaq fell 159.38 points to 10,546.03. The Russell 2000 gave up 1.4%.

European markets mostly rose, while Asian markets closed lower overnight.

Treasury yields gained ground. The yield on the 10-year Treasury, which influences mortgage rates, rose to 3.59% from 3.49% late Friday.

Investors have several economic reports to review this week as they try to determine the continuing path of inflation.

The National Association of Realtors delivers its November tally of U.S. home sales Wednesday. Home sales have been falling, but prices in the housing market have remained strong.

The Conference Board will release its consumer confidence report for December on Wednesday. Consumer confidence and spending has been another strong area of the economy, but inflation is starting to put a tighter squeeze on consumers.

The government will release a closely watched monthly snapshot of consumer spending on Friday, the personal consumption expenditure price index for November. The report is monitored by the Fed as a barometer of inflation.

The Fed ended its final meeting of the year last week by raising its short-term interest rate by half a percentage point, its seventh straight increase this year. More importantly, it signaled that it may have to maintain high interest rates longer than Wall Street had been anticipating in order to tame inflation.

The federal funds rate stands at a range of 4.25% to 4.5%, the highest level in 15 years. Fed policymakers forecast that the central bank’s rate will reach a range of 5% to 5.25% by the end of 2023. Their forecast doesn’t call for a rate cut before 2024.

Inflation is showing signs of easing, but at a relatively slow pace. The Fed’s aggressive policy risks hitting the brakes on the economy too hard, while at the same time economic growth is already slowing because of pressure from inflation. That could result in a recession, which analysts expect in some form within 2023, though the severity and duration is difficult to forecast.