Shares ended lower across Wall Street on Tuesday, weighed down by sharp declines in big tech stocks that also left the Nasdaq Composite for its worst decline since September 2020.
Investors are busy reviewing the latest round of corporate earnings and face a particularly difficult week with earnings from some of the country’s largest companies. Earnings growth has been one of the market‘s pillars, but reports so far have failed to offset investor concerns about rising inflation, interest rate hikes and potential damage to global economic growth from pandemic-related lockdowns in China.
The Standard & Poor’s 500 Index fell 120.92 points, or 2.8%, to 4,175.20. The benchmark index ended the day with 95% of its shares down. The Dow Jones industrial average fell 809.28 points, or 2.4%, to 33,240.18.
The tech-heavy Nasdaq bore the brunt of the daily losses. It fell 514.11 points, or 4%, to 12,490.74. That’s the sharpest drop since Sept. 8, 2020. The index is now down 20% for the year as investors shun the ultra-expensive tech sector, which has rallied hugely for much of the pandemic.
With the Federal Reserve aggressively raising interest rates while ramping up its inflation fight, traders are less willing to put up with the high prices they’ve paid for Microsoft, Facebook’s parent company, and other tech giants.
Microsoft fell 3.7%. Google’s parent Alphabet fell 3.6% in regular trading and another 6% in after-hours trading after reporting results that fell short of analysts’ estimates.
Other big tech companies are on deck to report earnings this week, including Facebook’s parent company Meta Platforms on Wednesday and Apple on Thursday.
Tesla tumbled 12.2% on fears that CEO Elon Musk will be distracted and less engaged in running the electric vehicle maker if he buys social media company Twitter, which fell 3.9%.
Retailers and other businesses that rely on direct consumer spending also fell across the board. General Motors fell 4.5% while Nike slipped 5.8%.
General Electric fell 10.3% for one of the biggest losses on the market after telling investors 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% from 2.82% late Monday.
Energy companies are the only ones to post gains out of 11 sectors in the S&P 500. Benchmark US crude rose 3.2%.
After a rally in the second half of March, equities were on shaky ground in April. The S&P 500 has fallen for three straight weeks.
“It’s the market that’s a little more comfortable with a slowdown at best and recession fears at worst,” said Ross Mayfield, Baird’s investment strategy analyst.
The past few days have been volatile as Wall Street also tries to gauge how China’s strict lockdown measures to combat COVID-19 will impact the entire global economy, including demand in the world’s second largest economy. This could lead to a rebalancing of expectations as Wall Street remains focused on the Federal Reserve’s plan to raise interest rates this year.
“The market has become friendly with the Fed to an extent, but when you add on-demand destruction in China, it’s a bit much for the market to absorb,” Mayfield said.
Technology companies aside, earnings for industrial and retail companies remain a key focus for Wall Street for the rest of the week. Aircraft manufacturer Boeing announced its results on Wednesday. Leading industrial group Caterpillar releases its results on Thursday along with McDonald’s and Amazon.
Investors are scrutinizing the latest round of company reports to get a better sense of how different industries are coping with rising inflation, which has prompted many companies to hike prices. The results will also provide a clearer picture of how consumers are reacting to higher prices on a variety of items, including groceries, clothing and petrol.
The Conference Board reported this in the business news consumer confidence slightly subdued in April but remains high. And on Friday, the Commerce Department releases its personal income and expenditure report for March.
Persistently rising inflation has prompted the Fed to change monetary policy to fight inflation aggressively. The Fed chairman has hinted that the central bank could hike short-term interest rates by twice the usual amount at upcoming meetings starting next week. It has already raised its key overnight rate once, the first such hike since 2018.
Economists and investors fear that the US economy could slow sharply or even fall into recession due to the expected large rate hikes by the Fed.