The US? stock market?posted its worst performance of the year to date at the end of Tuesday, with the main benchmarks ending much lower as investors interpreted a rebound in U.S. business activity in February to imply that interest rates will need to stay higher for longer to control inflation.
For the S&P 500 and Nasdaq Composite, it was their third session in a row of closing lower, while the decline in the Dow Jones Industrial Average wiped out its entire gains from 2023.
The Dow Jones Industrial Average fell 697.1 points, or 2.06%, to 33,129.59, and the S&P 500 lost 81.75 points, or 2.00%?to 3,997.34; and the Nasdaq Composite?dropped 294.97 points, or 2.5%, to 11,492.30.
The downfalls on Wall Street came after the S&P Global Purchasing Manufacturer's Index, which reflects business activity in the United States, returned to expansion for the first time in eight months in February. The 50.2 reading, up from 46.8 in January, was buoyed by a robust services sector, according to a survey.
The report added to a recent slew of economic data that has painted a picture of a resilient economy that continues to perform against a backdrop of multiple interest rate rises by the central bank in 2022 aimed at tamping down inflation.
With inflation still far from the Fed's 2% target and the economy retaining much of its vigor, money market?participants have been revising upward where they see the Fed fund rates peaking, currently at 5.35% in July and staying near those levels throughout the year.
"Today, the realization is that the Fed is not kidding around about higher for longer, and in fact it might be a little bit higher for a little-to-a-lot bit longer," said Carol Schleif, chief investment officer at BMO Family Office, as per a Reuters report.
Until recent days, U.S. stocks had an upbeat start to the year after their worst annual showing 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 pullbacks though, when data undermines such expectations.?"The market keeps looking for a dovish pivot, and they are just not going to get it," said Schleif.
Investors will look to the minutes detailing discussion at the Fed's last policy meeting, due out on Wednesday, for further clues on attitudes within the central bank on rates.
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Among those hit by Tuesday's widespread declines were big tech stocks, with Tesla, Amazon, Microsoft,?and Google parent Alphabet?all falling between 2.1% and 5.3%.
Not helping them was the fact that the U.S. benchmark 10-year Treasury notes hit a fresh three-month high.
Higher yields typically weigh on growth stocks, whose valuations tend to be based on future profits that are discounted heavily as rates go higher.
The semiconductor index was also impacted, dropping 3.3%. Elsewhere, Home Depot Inc. slumped 7.1% to a three-month low after the No. 1 domestic home improvement chain warned of weakening demand and issued a dour profit forecast for 2023.
Smaller rival Lowe's Cos. Inc. fell 5.1% ahead of its results next week. Walmart forecast full-year earnings below estimates and painted a grim picture of hotter-than-expected food inflation squeezing profit margins. However, the world's largest retailer rose 0.6%.
All of the major 11 S&P 500 sectors fell, with the consumer discretionary index's 3.3% decline leading the way, as per a Reuters report.
Volume on U.S. exchanges was 11 billion shares, compared with the 11.62 billion average for the full session over the last 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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