The S&P 500 and the Nasdaq tumbled on Tuesday after data showed producer prices increased more than expected in November, solidifying expectations the Federal Reserve this week will announce a faster wind-down of asset purchases.
The fast-spreading Omicron coronavirus variant also dampened investor sentiment after the S&P 500 index hit an all-time closing high late last week.
Declines were led by megacap tech-related stocks, with Meta Platforms, Microsoft Corp, Tesla Inc, Alphabet Inc and Amazon.com Inc falling between 1pc and 4pc.
Apple Inc was down 1.2pc after the iPhone maker said it would require customers and employees to wear masks at its U.S. retail stores as COVID-19 cases surge.
Data from the Labor Department showed the producer price index (PPI) for final demand in the 12 months through November shot up 9.6pc, clocking its largest gain since November 2010 and followed an 8.8pc increase in October.
About two thirds of Nasdaq stocks were trading below their 200-day moving average, according to Refinitiv data, suggesting many stocks within the index are struggling, even as the overall index remains only about 6pc below its November record high close.
Wall Street edges lower on Omicron worries; Fed meeting awaited
"COVID plus inflation is the Grinch that stole Christmas," said Jake Dollarhide, chief executive officer at Longbow Asset Management. "I don't underestimate the fact that there are some big Nasdaq names giving up some of their big gains. When the leaders sell off, it's not a good sign."
In afternoon trading, nine of the 11 major S&P 500 sector indexes were lower. Financials gained 0.8pc as investors bet on a hawkish tone from the Fed at the end of its two-day meeting on Wednesday.
Many investors expect the U.S. central bank to signal a faster wind-down of asset purchases, and thus, a quicker start to interest rate hikes in order to contain the rapid rise in prices.
"I would say this meeting is when we start to get some clarity on how they're (the Fed) going to address this idea of inflation that has remained elevated and most likely will remain an issue going into next year," said David Keller, chief market strategist at StockCharts.com.
A Reuters poll of economists sees the central bank hiking interest rates from near zero to 0.25pc-0.50pc in the third quarter of next year, followed by another in the fourth quarter.
The Dow Jones Industrial Average was down 0.26pc at 35,558.91 points, while the S&P 500 lost 0.96pc to 4,624.32.
The Nasdaq Composite dropped 1.59pc to 15,167.63.
Beyond Meat Inc firmed 6.8pc after Piper Sandler upgraded the plant-based meat maker's stock to "neutral" from "underweight".
Declining issues outnumbered advancing ones on the NYSE by a 2.50-to-1 ratio; on Nasdaq, a 2.64-to-1 ratio favored decliners.
The S&P 500 posted 13 new 52-week highs and 2 new lows; the Nasdaq Composite recorded 16 new highs and 369 new lows.
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