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Wall St drops as megacaps weigh amid Fed rate debate

By Amruta Khandekar

(Reuters) - Wall Street's main indexes fell on Monday, bogged down by a drop in shares of Apple and other megacaps, while investors braced for a hefty rate hike from the Federal Reserve this week and assessed the path of future interest rates.

The U.S. Fed is set to meet on Tuesday and Wednesday, where policymakers are expected to deliver a fourth straight 75-basis point interest rate hike to curb decades-high inflation. Communication from Fed officials after the decision as well as well as non-farm payrolls data this week will offer further clues on whether the central bank could tone down its aggressive stance on interest rates in the future.

Apple Inc (NASDAQ:AAPL) dropped 2.1% in early trading. A Reuters report said production of its iPhones could slump by as much as 30% next month due to tightening COVID-19 curbs in China.

Shares of other megacaps including Amazon.com (NASDAQ:AMZN), Google-owner Alphabet (NASDAQ:GOOGL), and Microsoft (NASDAQ:MSFT) and Meta Platforms were down between 0.8% and 3%.

Among sectors, information technology and communication services were the lead decliners, falling 1.6% and 1.9% respectively.

Hopes for a less hawkish Fed as well as better-than-expected earnings from companies outside the technology sector had led to the S&P 500 and the Nasdaq, notching their second straight week of gains on Friday.

Both the indexes are also set to record gains in October after two straight months of declines. The Dow Jones, meanwhile, could see its biggest monthly rise in over four decades depending on the day's moves.

"You have a convergence of the labor market and the Fed together, and so it should make it a very questionable market week in terms of the direction," said Peter Cardillo, chief market economist at Spartan Capital Securities in New York.

"We'll be hearing from Fed Chair Powell on Wednesday and his words probably mean more than his actions. If his tone, if his language begins to moderate somewhat, that will continue to be positive for stocks." Traders are nearly equally split in their expectations of the Fed delivering a smaller interest rate hike at its next policy meeting, with odds of a 50 basis point rate hike in December standing at 47.9%, according to CME Group's (NASDAQ:CME) Fedwatch tool.

Along with the Fed, U.S. mid-term elections will also set the tone for markets in November. At 10:14 a.m. ET, the Dow Jones Industrial Average was down 184.99 points, or 0.56%, at 32,676.81, the S&P 500 was down 33.15 points, or 0.85%, at 3,867.91, and the Nasdaq Composite was down 145.57 points, or 1.31%, at 10,956.88.

Declining issues outnumbered advancers for a 1.65-to-1 ratio on the NYSE and 1.56-to-1 ratio on the Nasdaq. The S&P index recorded 10 new 52-week highs and five new lows, while the Nasdaq recorded 63 new highs and 47 new lows.

Among single stocks, TuSimple Holdings plunged 45% after the trucking firm said its board terminated its chief executive officer.

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