Wall Street had a challenging day on Tuesday, with the S&P 500 and the Nasdaq Composite losing ground for the third day in a row, while the Dow Jones Industrial saw its gains for 2023 wiped out. These losses were due to a rise in U.S. business activity in February, which convinced investors that interest rates would have to remain high to control inflation. The S&P Global Purchasing Manufacturer’s index, which measures business activity in the United States, revealed its first expansion in eight months with a 50.2 reading, which was buoyed by a robust services sector. However, with inflation still not meeting the Federal Reserve’s 2% target, investors have been predicting that the Fed fund rates will remain at around 5.35% until July.
Carol Schleif, chief investment officer at BMO Family Office, stated that “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”. Although the market had a positive beginning to the year, the Federal Reserve’s rate-hike cycle caused equity markets to become vulnerable to pull-backs whenever data undermined the market’s expectations. Investors are anticipating the release of the Fed’s policy meeting minutes, scheduled for Wednesday, to receive more insights into the central bank’s attitude towards rates.
The Dow Jones Industrial decreased by 697.1 points, or 2.06%, to 33,129.59, and the Nasdaq Composite dropped by 294.97 points, or 2.5%, to 11,492.30. Large tech stocks such as Tesla, Amazon, Microsoft, and Google-parent Alphabet all saw losses ranging between 2.1% and 5.3%. Higher yields also negatively affected the semiconductor index, leading to a 3.3% decline. The consumer discretionary index experienced the biggest drop, with a 3.3% decline.
Several companies saw a decline in their stocks, including Home Depot, which dropped by 7.1% to a three-month low. Smaller rival Lowe’s Cos also experienced a 5.1% drop ahead of its upcoming results next week. Walmart forecasted full-year earnings below estimates and warned of food inflation, which could affect its profit margins, yet it still saw a 0.6% increase. All 11 major S&P 500 sectors experienced a decline. The U.S. exchanges saw 11 billion shares, less than the average of the last 20 trading days.
In summary, Wall Street had a challenging day on Tuesday due to a rise in U.S. business activity in February, which convinced investors that interest rates would have to remain high to control inflation. The release of the Fed’s policy meeting minutes scheduled for Wednesday will provide further insights into the central bank’s attitude towards rates. Large tech stocks and the semiconductor index experienced losses, and several companies saw a decline in their stocks, with Home Depot seeing a 7.1% decrease. All 11 major S&P 500 sectors experienced a decline.
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