Wall Street posted its worst performance of the year on Tuesday, with major benchmarks ending lower as investors interpreted a rebound in US business activity in February as meaning longer interest rates to control inflation. Will need to stay.
For the S&P 500 and Nasdaq Composite, it was their third consecutive session to close lower, while a decline in the Dow Jones Industrial erased their gains for 2023.
The decline came after the S&P Global Purchasing Manufacturers Index, which gauges business activity in the United States, returned to expansion in February for the first time in eight months. That was buoyed by a strong services sector, a reading of 50.2 from 46.8 in January, according to a survey.
The report adds to recent economic data that painted a picture of a resilient economy, which continues to perform against a backdrop of multiple rate hikes by the central bank in 2022 aimed at reducing inflation.
With inflation still far from the Fed’s 2% target, and the economy maintaining much of its buoyancy, currency market participants have revised upwards where they see the fed funds rate rising – currently to 5.35 in July. % and stay near those levels for the rest of the year .
“Today, there’s a feeling that the Fed isn’t kidding about higher for a long time, and in fact it might be a little bit higher for a while,” said Carol Schleff, chief investment officer at BMO. Family Office.
US stocks started the year well after posting their worst annual performance in more than a decade in 2022 as investors hoped the central bank’s rate-hike cycle was nearing its end. Such positivity makes equity markets susceptible to a pull-back, however, when data dampens such expectations.
“The market keeps looking for a dovish pivot, and they’re not going to get it,” Schleff said.
Investors will be watching a detailed discussion of the minutes for further clues about the central bank’s inside stance on rates at the Fed’s final policy meeting on Wednesday.
The Dow Jones Industrial Average fell 697.1 points, or 2.06%, to 33,129.59, the S&P 500 lost 81.75 points, or 2.00%, to 3,997.34 and the Nasdaq Composite lost 294.97 points, or 2.5%, to 11,492.30.
Among those hit by Tuesday’s broad decline were big tech stocks, with Tesla Inc, Amazon.com Inc, Microsoft Corp and Google-parent Alphabet Inc all falling between 2.1% and 5.3%.
Not helping them was the fact that US benchmark 10-year Treasury notes rose to a three-month high.
Higher yields typically weigh on growth stocks, whose valuations are based on future profits, which are heavily discounted as rates rise.
The semiconductor index was also affected, falling 3.3%.
Elsewhere, Home Depot Inc fell 7.1% to a three-month low, the No. 1 domestic home improvement chain warned of weak demand and issued a dour profit forecast for 2023.
Smaller rival Lowe’s Cos Inc fell 5.1% from its results the following week.
Walmart reported lower-than-expected full-year earnings and painted a grim picture of higher-than-expected hot food inflation eroding profit margins. However, the world’s largest retailer rose 0.6%.
All 11 of the major S&P 500 sectors fell, with the Consumer Discretionary index down 3.3%.
Volume on US exchanges stood at 11 billion shares compared to an average of 11.62 billion for the entire session over the past 20 trading days.
The S&P 500 posted two new 52-week highs and one new low; The Nasdaq Composite recorded 57 new highs and 112 new lows.
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