NEW YORK: Wall Street’s main stock indexes fell on Tuesday, dragged down by megacap names, after data showing a rebound in business activity in February stoked fears that the Federal Reserve might have more room to raise rates to control inflation.
Tesla Inc, Amazon.com Inc, Microsoft Corp and Google-parent Alphabet Inc fell between 1.7% and 3.2%, as the yield on the US 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 S&P Global Purchasing Manufacturer’s index showed that business activity in the US rebounded to its highest level in eight months in February to 50.2 from 46.8 in January, buoyed by a robust services sector, according to a survey.
“This (business activity) data doesn’t do anything to get rid of the fears that the Fed might be more hawkish and might feel like taking rates higher than what investors were thinking just a month ago,” said Brian Jacobsen, senior investment strategist at Allspring Global Investments.
US 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.
However, recent economic data has pointed to a resilient economy, with inflation far from the Fed’s 2% target, raising bets for two or three more 25 basis point increases.
Money market participants see the Fed fund rates peaking at 5.35% in July and staying near those levels throughout the year.
At 12:43 p.m. ET, the Dow Jones Industrial Average was down 543.47 points, or 1.61%, at 33,283.22, the S&P 500 was down 66.45 points, or 1.63%, at 4,012.64, and the Nasdaq Composite was down 238.52 points, or 2.02%, at 11,548.75.
Further weighing on markets, Home Depot Inc slumped 5.8% 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 4.9% 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 added 0.3%.
Analysts are expecting earnings of S&P 500 companies to grow by 1.6% in 2023, compared with 4.4% growth estimated at the start of the year, as per Refinitiv data.
Ten of the major 11 S&P 500 sectors fell, with the consumer discretionary index slumping 2.7%.
Meta Platforms Inc added 0.5% after the Facebook parent said it was testing a monthly subscription service called Meta Verified, which will let users verify their accounts using a government ID and get a blue badge.
Declining issues outnumbered advancers for a 6.17-to-1 ratio on the NYSE and 4.24-to-1 ratio on the Nasdaq.
The S&P index recorded one new 52-week high and one new low, while the Nasdaq recorded 36 new highs and 85 new lows.