U.S. stocks fell Tuesday as investors worried that higher interest rates and stubborn inflation will tip the economy into recession and hurt corporate earnings.
The S&P 500 fell more than 1% to its lowest level since November 2020 early in the session but regained some losses to trade down 0.1%, hurt by weaker tech stocks such as Meta Platforms, whose high valuations are sensitive to rising rates. The Nasdaq was down 0.35%, also rebounding from levels that earlier in day notched a fresh 52-week low, weighed down by tech and semiconductor stocks.
The Dow Jones Industrial Average rose 188 points or 0.65%, uplifted by jumps in Amgen and Walgreens Boots Alliance.
Bond prices also fell, and the yield on the U.S. 10-year Treasury neared the key 4% level overnight. Yields backed off their rally Tuesday morning, with the 10-year yield up about 2 basis points at 3.904%. Bond yields are inverse to prices, and a basis point is one hundredth of one percent.
The moves came as investors look ahead to key inflation data that will inform how aggressively the Federal Reserve will hike interest rates to tame inflation. On Wednesday, the producer price report will be released and followed by the September consumer price index Thursday. On Friday, September retail sales will give further insight into consumption.
The path of the central bank’s interest rate increases may push the U.S. economy into recession, which would drag down company earnings.
JPMorgan CEO Jamie Dimon on Monday warned that the U.S. would likely fall into a recession over the next “six to nine months,” and said the S&P 500 could fall another 20% depending on whether the Federal Reserve engineers a soft or a hard landing for the economy.
“This is an awful stock market environment that is grappling with a weakening economy, uncertainty over earnings and how long the Fed’s tightening will last, and sentiment issues with an extremely risk averse investor psychology,” said David Bahnsen, chief investment officer of The Bahnsen Group, in a Tuesday note.
“We believe the Fed will raise interest rates one or two more times until the Fed funds rate reaches 4% and then take a pause, at which point the Fed will assess the damage done,” he added.
This week also kicks off earnings season. On Friday, JPMorgan, Wells Fargo, Morgan Stanley and Citi – four of the world’s largest banks – report quarterly earnings.
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