Jan 3 (Reuters) - U.S. stock indexes extended losses for a second straight day on Wednesday as profit-taking continued after a strong end to 2023, with minutes from the Federal Reserve's December meeting failing to shake off the funk hanging over markets.
Fed policymakers appeared increasingly convinced that inflation was coming under control, with "upside risks" diminished and growing concern about the damage that "overly restrictive" monetary policy might do to the economy, the minutes released on Wednesday showed.
The minutes shed little light on when rate cuts might commence.
"I don't think there's anything too shocking" in the minutes, said Garrett Melson, portfolio strategist at Natixis Investment Managers Solutions. Much of the messaging around rate cuts had already been previewed by Fed Chair Jerome Powell and other policymakers in recent weeks, he noted.
Investors have been cautious so far in 2024, wary of the central bank's expected pivot to rate cuts this year and how quickly these might be implemented. This is especially after the blistering stock market rally at the end of 2023 extended valuation multiples.
The benchmark S&P 500 (.SPX) came within striking distance of its all-time closing high last week as signs of cooling inflation triggered investors to bet on an aggressive rate-cutting schedule. But Wall Street kicked off the new year on a dull note on Tuesday as Apple and other high-growth companies came under pressure from higher Treasury yields.
Shares of rate-sensitive megacap stocks extended Tuesday's drop, with Nvidia (NVDA.O), Apple (AAPL.O) and Tesla (TSLA.O) down between 0.6% and 3.3%. Their fate was not helped by the 10-year Treasury yield initially climbing for a fourth straight session, although it had reverted to 3.91% by mid-afternoon.
"We've had quite the rally off the October lows, and a lot of indicators are screaming overbought, so it's not surprising to see a little bit of a breather," said Natixis' Melson.
While the Fed is widely expected to keep rates on hold in January, traders have priced in a 67% chance of a 25 basis point rate cut in March, as per CMEGroup's FedWatch tool.
Richmond Fed President Thomas Barkin said, prior to the release of the minutes, that the U.S. central bank is "making real progress" towards taming inflation without inflicting major damage on the job market, with a hoped-for soft landing "increasingly conceivable."
Data showed U.S. job openings fell for the third straight month in November as labor market conditions gradually ease.
The Institute for Supply Management's survey showed U.S. manufacturing activity contracted further in December, though the pace of decline slowed amid a modest rebound in production and improvement in factory employment.
At 2:53 p.m. ET, the Dow Jones Industrial Average (.DJI) was down 143.87 points, or 0.38%, at 37,571.17; the S&P 500 (.SPX) was down 21 points, or 0.44%, at 4,721.83; and the Nasdaq Composite (.IXIC) was down 114.54 points, or 0.78%, at 14,651.41.
Airline stocks came under pressure as a jump in oil prices, following disruption at Libya's top oilfield, raised concerns about fuel costs. The S&P 1500 passenger airlines index (.SPCOMAIR) tumbled 3.5%.
Higher crude prices supported the energy index (.SPNY), the leading gainer among the minority of S&P sectors in positive territory.
While financials (.SPSY) was among the sectors trading lower, Citigroup (C.N) gained 2% to its highest intraday level since mid-August 2022. The bank continued to benefit from a price target upgrade and an upbeat analyst report from Wells Fargo released the previous day.
Charles Schwab (SCHW.N) and Blackstone (BX.N) were among those pulling down the wider financials index. They dropped 2.4% and 4%, respectively, after Goldman Sachs downgraded the stocks to "neutral" from "buy."
