Dow falls more than 400 points due to profits and rising bond yields

U.S. stocks fell sharply on Tuesday, with major indices experiencing their worst daily percentage decline in more than two months as downbeat outlooks from major retailers, rising Treasury yields and economic data fueled fears that the Federal Reserve might have to raise interest rates. and keep them there longer to tame the price pressure.

How shares are traded
  • S&P 500 SPX index,
    -2.00%
    fell 81.75 points, or 2%, to 3997.34 points.

  • Dow Jones industrial index DJIA,
    -2.06%
    fell 697.10 points, or 2.1%, to 33,129.59.

  • Nasdaq Composite COMP,
    -2.50%
    lost 294.97 points, or 2.5%, to 11,492.30.

US markets were closed on Monday for President’s Day.

What drives the markets

Investors returned after a long weekend on Tuesday in a grim mood as the Fed’s expectations of higher interest rates continued to worry stock market investors. The three major benchmark indexes posted their worst daily percentage decline since December 15, according to data from FactSet.

The S&P 500 has halved its year-to-date gains in percentage terms since peaking at 4,195 on Feb. 2, according to FactSet data. The Large Cap Index is up 4.1% this year. However, the Dow Industrial Average wiped out nearly all of its yearly gains.

Last week, a flurry of hotter-than-expected inflation reports and comments from Federal Reserve officials prompted investors to bet on further interest rate hikes by the central bank. Fed fund futures traders estimate there is a 76% chance that the Fed will raise interest rates by a quarter percentage point to 4.75-5% on March 22, followed by another 25 basis point hike in May. , according to the CME FedWatch tool.

Meanwhile, traders continued to push expectations for a peak in the federal funds rate, with several traders now peaking around 6%. Overall, traders have only recently come to the conclusion that the Fed expects the federal funds rate to peak just above 5%.

“Despite the stock market having an impressive rebound this year, markets are still trying to adjust to the reality that the Fed is unlikely to change its mind and instead remains focused on fighting inflation, which suggests that investors should be prepared for interest rates. to stay taller longer,” said Carol Schleif, chief investment officer of the BMO family office in Minneapolis.

“The FOMC report on Wednesday should reveal a closer look at the Fed’s speculation, especially with the recently released inflation and employment data still elevated and illustrating a hot economy,” she said.

Minutes of the Fed meeting from January 31 to February. 1 political meeting will be published Wednesday at 2:00 pm ET.

See: Why the stock market isn’t as forward-looking as investors might think when it comes to a recession

On Tuesday, the yield of 2-year treasury bonds TMUBMUSD02Y was
4.698%
approached the highest level in 15 years, jumping to 4.69%. Yield on 10-year treasury bonds TMUBMUSD10Y,
3.958%
rose to 3.902%.

“Higher rates due to market repricing of potentially higher monetary policy have affected risk appetite,” said Adam Turnquist, chief technical strategist at LPL Financial. “The benchmark 10-year Treasury yield has now cleared key resistance at 3.90%, raising the risk of upside yields that are likely to continue weighing on equities.”

See: Biden vowed Russia would ‘never’ win a war with Ukraine

Tensions over Russia’s invasion of Ukraine as the first anniversary of the war approaches have also heightened market anxiety. US President Joe Biden visited Poland on Tuesday and will hold consultations with allies on NATO’s eastern flank following an unannounced visit to Kyiv on Monday.

Read: Investors have pushed stocks into the death zone, warns Mike Wilson of Morgan Stanley.

Meanwhile, Chinese President Xi Jinping plans to visit Moscow in the coming months for a summit meeting with Vladimir Putin. Wang Yi, the country’s chief diplomat, is scheduled to visit Moscow this week.

See: Potential stock market disaster brewing: The popularity of these risky option bets is making Wall Street nervous

See: Stock market rally could peak before Q1 ends, JPMorgan strategists say

US economic data on Tuesday included S&P flash services, which rose to an 8-month high in February at 50.5 from 46.8 the previous month. The US manufacturing PMI rose to a four-month high of 47.8 from 46.9.

While both are increasing, any number below 50 indicates a potential contraction in the economy.

Tuesday’s data showed existing home sales fell to their lowest level in a decade. The 0.7% decline in January is the 12th straight monthly decline, according to the National Association of Realtors.

Companies in the spotlight
  • Walmart Inc.
    TDC,
    +0.61%
    shares closed up 0.6% on Tuesday after the retail giant reported its fourth-quarter earnings and its outlook for the future. The company beat estimates on earnings and sales, but also offered guidance for the first quarter and full fiscal year 2024 that fell short of expectations.

  • Home Depot Inc.
    HD,
    -7.06%
    shares fell 7.1% after the household goods chain’s fourth-quarter results. Despite a decline in earnings during the quarter, sales fell short of expectations, with the company’s gloomy forecasts pointing to continuing problems with inflation, labor markets and supply chains.

  • Stock Meta Platforms Inc.
    META,
    -0.46%
    fell 0.5% after the parent company of Facebook and Instagram said it was testing a paid subscription tier to validate accounts.

  • Shares of a manufacturer of medical equipment, Medtronic PLC
    MDT,
    +0.81%,
    closed up 0.8% after the release of fiscal third quarter results. Sales and adjusted earnings per share beat estimates, and the company revised its fourth-quarter earnings per share forecast from $5.28 to $5.30 from its previous estimate of $5.25 to $5.30.

Engines and shakers: Home Depot and Walmart fall after earnings forecasts; Mother platform Facebook Meta rises due to trial subscription level

— Jamie Chisholm contributed reporting for this article..

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