Stocks closed broadly lower on Wall Street Tuesday, weighed down by sharp declines in Big Tech stocks that also left the Nasdaq with its worst drop since September 2020.
Investors are busy reviewing the latest round of corporate earnings and are facing a particularly heavy week with results from some of the nation’s biggest companies. Earnings growth has been one of the pillars of the market, but the reports so far haven’t offset investors’ concerns about rising inflation, interest rate hikes and potential damage to global economic growth from pandemic-related lockdowns in China.
The S&P 500 fell 120.92 points, or 2.8 per cent to 4,175.20. The benchmark index closed the day with 95 per cent of its stocks losing ground. The Dow Jones Industrial Average fell 809.28 points, or 2.4 per cent, to 33,240.18.
The tech-heavy Nasdaq bore the brunt of the day’s losses. It fell 514.11 points, or 4 per cent, to 12,490.74. That’s its worst drop since September 8, 2020. The index is now down 20 per cent so far this year as investors shun the ultra-pricey tech sector, which had made gangbuster gains for much of the pandemic.
With the Federal Reserve set to aggressively raise interest rates as it steps up its inflation fight, traders are less and less willing to endure the lofty prices they had been paying for Microsoft, Facebook’s parent company and other tech giants.
Microsoft fell 3.7 per cent. Google’s parent company, Alphabet, fell 3.6 per cent in regular trading and lost another 6 per cent in after-hours trading after reporting results that fell short of analysts’ estimates.
More big technology companies are on deck to report earnings this week, including Facebook parent’s company, Meta, on Wednesday, and Apple on Thursday.
Tesla slumped 12.2 per cent over concerns that CEO Elon Musk will be distracted and less engaged in running the electric vehicle maker as he buys social media company Twitter, which fell 3.9 per cent.
Retailers and other companies that rely on direct consumer spending also fell broadly. General Motors fell 4.5 per cent while Nike slipped 5.8 per cent.
General Electric fell 10.3 per cent for one of the sharpest losses in the market after telling investors that inflation and other pressures are weighing on its profit forecast for the year.
Bond yields fell. The yield on the 10-year Treasury fell to 2.73 per cent from 2.82 per cent late Monday.
Energy companies eked out a gain, the only one of the 11 sectors in the S&P 500 to do so. The price of benchmark US crude oil rose 3.2 per cent.
After rallying the second half of March, stocks have been on shaky ground in April. The S&P 500 has fallen for three straight weeks.
“It’s the market getting a little more comfortable with a slowdown at best and recessionary fears at worst,” said Ross Mayfield, investment strategy analyst at Baird.
The last few days have been volatile as Wall Street also tries to assess how China’s strict lockdown measures to fight COVID-19 will impact the broader global economy, including hurting demand in the world’s second-largest economy. It could be prompting a resetting of expectations while Wall Street is also still focused on the Federal Reserve’s plan to raise its benchmark interest rates this year.
“The market had gotten comfortable, to an extent, with the Fed, but when you layer on demand destruction in China, it’s a little much for the market to stomach,” Mayfield said.
Persistently rising inflation has prompted the Fed to shift its monetary policy in order to aggressively fight inflation. The chair of the Fed has indicated the central bank may hike short-term interest rates by double the usual amount at upcoming meetings, starting next week. It has already raised its key overnight rate once, the first such increase since 2018.
Economists and investors are concerned that the US economy might slow sharply or even fall into a recession because of the big interest-rate increases the Fed is expected to push through.