Dow futures drop 200 points as traders prepare for a busy week of earnings, the Fed’s interest rate decision

Stock futures traded lower on Monday morning amid a rally in January as investors braced for the biggest week of earnings season and the prospect of an interest rate hike from the Federal Reserve.

Futures related to the Dow Jones Industrial Average fell 206 points, or about 0.6%. S&P 500 futures were down 0.9%, and Nasdaq 100 futures were down 1.1%.

Wall Street is approaching a winning week as the stock market rally in January continued. The Nasdaq Composite was up 4.3% for the week, while the S&P 500 and Dow added 2.5% and 1.8%, respectively. The S&P 500 rose 6% for 2023 after losing 19% last year and closed at its highest level since a new year on Friday.

There are several tests this week of the 2023 rally. About 20% of the S&P 500 will report earnings this week, including McDonald’s and General Motors on Tuesday followed by tech giants Apple, Meta Platforms, Amazon and Alphabet later in the week.

The Federal Open Market Committee meets on Tuesday and Wednesday, when the Fed is expected to raise interest rates by a quarter of a percentage point. Investors will be looking for clues as to how far the central bank will take higher rates in the fight against inflation. Traders have pushed stocks higher this year in part on weak inflation reports, which they suspect may prompt the Fed to halt its hiking campaign soon.

“Although there have been many positive developments, we believe the good news has now been priced in, and the truth is likely to return as the month ends and the Fed resolves to tame inflation,” wrote Mike Wilson, senior US equity strategist at Morgan Stanley. Notice the two.