February 21 (Reuters) – Wall Street posted its worst performance of the year on Tuesday, with key benchmarks ending as investors interpreted a rebound in U.S. business activity in February as meaning the interest rates must remain higher for a longer period of time to control inflation.
For the S&P 500 (.SPX) and Nasdaq Composite (.IXIC), it was their third consecutive session to close lower, while the decline in the Dow Jones Industrial (.DJI) erased its gains for 2023 .
The fall came after the S&P Global Purchasing Manufacturer index, which shows 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 boosted by a strong services sector, according to a survey.
The report added to a recent slew of economic data that painted a picture of a strong economy, which continues to perform against a backdrop of several rate hikes by the central bank in 2022. which aims to lower inflation.
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With inflation still far from the Fed’s 2% target, and the economy retaining much of its strength, monetary policy participants are revving up where they see the Fed’s funds rate rising – now of 5.35% in July and remains close to the levels throughout the year.
“Now, the realization is that the Fed is not kidding much higher, and in fact it may be a little bit higher for a little bit longer,” said Carol Schleif, chief investment officer. at the BMO Family Office.
US stocks had a strong start to the year after their worst annual showing in more than a decade in 2022, as investors hope the central bank’s rate hike cycle is nearing an end. Such positivity makes equity markets susceptible to pull-backs however, when data undermines such expectations.
“The market kept looking for a dovish pivot, and they couldn’t get it,” Schleif said.
Investors will look to the minutes detailing the discussion of the Fed’s last policy meeting, due on Wednesday, for further indications of the central bank’s stance on rates.
The Dow Jones Industrial Average (.DJI) fell 697.1 points, or 2.06%, to 33,129.59, the S&P 500 (.SPX) lost 81.75 points, or 2.00%, to 3,997.34 and the Nasdaq Composite (.29, 94 or 2.5%, to 11,492.30.
Among those hit by Tuesday’s widespread decline were big tech stocks, with Tesla Inc ( TSLA.O ), Amazon.com Inc ( AMZN.O ), Microsoft Corp ( MSFT.O ) and Google-parent Alphabet Inc ( GOOGL .O) all. fell between 2.1% and 5.3%.
Not helping them was the fact that the benchmark US 10-year Treasury note hit a new three-month high.
Higher yields typically weigh on growth stocks, whose valuations tend to be based on future earnings that are heavily discounted while prices are higher.
The semiconductor index (.SOX) was also affected, falling 3.3%.
Elsewhere, Home Depot Inc ( HD.N ) fell 7.1% to a three-month low after No.
Smaller rival Lowe’s Cos Inc (LOW.N) fell 5.1% ahead of its results next week.
Walmart ( WMT.N ) 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 rose 0.6%.
All major 11 S&P 500 sectors fell, with the consumer discretionary index (.SPLRCD)’s 3.3% decline leading the way.
The volume of US exchanges was 11 billion shares, compared to the 11.62 billion average for the entire session of the last 20 trading days.
The S&P 500 posted two new 52-week highs and one new low; the Nasdaq Composite recorded 57 new highs and 112 new lows.
Reporting by Johann M Cherian and Medha Singh in Bengaluru and David French in New York; Editing by Marguerita Choy and Anil D’Silva
Our Standards: The Thomson Reuters Trust Principles.
