Shares fell Tuesday as Federal Reserve Governor Lael Brainard indicated that the central bank could take a more aggressive approach to its tightening policy.
The Nasdaq Composite led the bears on Tuesday, shedding 2.26% at 14,204.17 and losing its 1.9% pop in the previous session. The Dow Jones Industrial Average lost 280.7 points, or 0.8%, to close at 34,641.18. The S&P 500 fell 1.26% to 4,525.12 after posting two consecutive days of gains.
“Ultimately, the way it works, the economy slows down, the stock market has to reflect that,” Mark Zandi, chief economist at Moody’s Analytics, told CNBC’s “Power Lunch” Tuesday. “So I expect the stock market to have a tough few months here as it eventually adjusts to what the Fed is doing and doing in the future.”
Tech stocks were among the biggest losers of the day. Shares of chips contributed to the decline, as Nvidia fell 5.2% and AMD lost more than 3%. Some believe tech companies could be hurt more by the Fed’s hike campaign as investors take less risk and buy stocks with steady profits, rather than growth stocks that promise big gains along the way.
Meanwhile, sectors such as utilities and healthcare surged Tuesday, with drug makers Johnson & Johnson and Pfizer rising slightly along with commodities like Procter & Gamble and Walmart. Cruise shares Carnival and Norwegian Cruise Line added more than 2% and 1% respectively.
“The way the market is acting today, the playbook is defending with commodity-related sectors outperforming, while technology underperforms due to concerns of high interest rates,” said Keith Lerner co-CIO and chief. Truist market strategist. “There is concern about the economy and the Fed’s ability to maneuver a soft landing.”
After a slightly positive start to the day, stocks eased and rates peaked after Brainard, who is generally regarded as one of the more accommodative Fed members, said the central bank must “quickly” reduce its balance sheet to reduce inflation.
“Inflation is too high and is subject to upside risks,” he said, noting that the Fed also needed a steady pace of rate hikes.
Following his comments, the 10-year Treasury yield jumped to 2.56% and reached its highest level since May 2019.
Recessive fears continued to scare investors on Tuesday, and Deutsche Bank became the first major Wall Street bank to predict a recession in the US, citing the Fed becoming more aggressive to fight inflation.
“The US economy is expected to take a hit from the Fed’s extra tightening by the end of next year and early 2024,” the bank’s economists said in a note to clients Tuesday. “We see two negative quarters of growth and a more than 1.5% pt increase in the unemployment rate in the US, developments that clearly qualify as a recession, albeit a moderate one.”
As the Russia-Ukraine war continues, investors watched Ukrainian President Volodymyr Zelenskyy ask a Nuremberg-like court to hold Russia accountable for alleged war crimes, during an appearance before the UN Security Council.
Oil prices slid Tuesday, with West Texas Intermediate stabilizing 1.28% lower at $ 101.96. Brent crude futures fell 0.83% to stand at $ 106.64. The market has been volatile since the start of the war due to concerns over supply disruptions.
The moves on Tuesday come as investors await the release of the minutes of the Federal Reserve meeting on Wednesday. Those minutes come from last month’s meeting, when the central bank hiked rates for the first time in years and indicated that six more hikes were expected this year.
Investors are gearing up for the first quarter corporate earnings season, which begins next week.
– CNBC’s Patti Domm contributed to the reporting