NEW YORK: Wall Street posted its worst performance of the year on Tuesday (Feb 21), with the main benchmarks ending down as investors interpreted a rebound in US business activity in February to mean interest rates will need to stay higher for longer to control inflation.
The Dow Jones Industrial Average fell 697.1 points, or 2.06%, to 33,129.59, 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.
For the S&P 500 and Nasdaq Composite, it was their third session in a row closing lower, while the decline in the Dow Jones Industrial wiped out its gains for 2023.
Analysts said the pullback reflects recognition that hopes for a quick Fed pivot may have been unrealistic.
“Markets are realising that they may have gotten ahead of themselves,” said Steve Sosnick, chief strategist at Interactive Brokers.
“The big speculation that we saw over the past few weeks seems to have been replaced by more sober thinking,“ he noted.
The falls 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 which has painted a picture of a resilient economy, which continues to perform against a backdrop of multiple 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 upwards where they see the Fed fund rates peaking – currently at 5.35% in July and staying near those levels throughout the year.
“Today, the realisation 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.
“The market keeps looking for a dovish pivot, and they are just not going to get it,“ she said.
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.
Among those hit by Tuesday's widespread declines were big tech stocks, with Tesla Inc, Amazon.com Inc, Microsoft Corp and Google-parent Alphabet Inc all falling between 2.1% and 5.3%.
Not helping them was the fact 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 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. – Reuters, AFP
Source: The Sun Daily
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