Stocks slide on Wall Street as inflation concerns linger
Stocks closed broadly lower on Wall Street on Tuesday after a disheartening outlook for U.S. consumer confidence fueled investor concerns that sharply higher interest rates and widespread inflation could trigger a recession. .
The S&P 500 ended down 2%, reversing a 1.2% gain from the start of the day. The Dow Jones Industrial Average fell 1.6% and the Nasdaq composite ended down 3%.
About 85% of stocks in the benchmark S&P 500 index closed in the red. Technology, communications and healthcare stocks accounted for much of the decline. Retailers and other businesses that rely on direct consumer spending also helped drag the index down. Energy stocks, the only sector in the index to post gains this year, rose as crude oil prices rose.
The indices got off to a good start, but the gains faded midday after the Conference Board announced that its consumer confidence index fell in June to its lowest level in more than a year. The decline was largely driven by concerns about inflation, including rising gasoline and food prices. The results were also much weaker than expected by economists.
“Confidence will continue to decline as long as inflation remains high,” said Chris Zaccarelli, chief investment officer at Independent Advisor Alliance. “It all comes down to inflation, that ultimately drives the Fed’s reaction and impacts the market and consumer confidence.”
The S&P 500 fell 78.56 points to 3,821.55, while the Dow Jones fell 491.27 points to 30,946.99. The tech-heavy Nasdaq slipped 343.01 points to 11,181.54.
Shares of smaller companies also fell. The Russell 2000 fell 32.90 points, or 1.9%, to 1,738.84. The indices are all on pace with losses of 6% or more in June.
Investors face a pervasive list of concerns centered on rising inflation that is squeezing businesses and consumers. The supply chain issues that have been driving inflation higher have been compounded in recent months by increased restrictions in China related to COVID-19.
Companies have raised the prices of everything from food to clothing. Russia’s invasion of Ukraine in February put even more pressure on consumers by raising energy prices and sending gasoline prices to record highs.
Consumers were already shifting their spending from goods to services as the economy recovered from the impact of the pandemic, but intensifying inflation pressure led to a sharper shift in discretionary items like electronics to basic necessities.
Stubborn inflationary pressures have prompted a dramatic shift in policy by central banks, which are raising rates in an attempt to temper inflation after years of keeping rates low to promote economic growth.
Now they are trying to slow economic growth, but investors fear they are going too far and pushing the economy into a recession, as leading economic indicators are already showing a slowdown in areas such as retail sales.
“The market could be spooked by the speed at which consumers are losing confidence, and that could possibly disrupt a soft landing” for the economy, said Sam Stovall, chief investment strategist at CFRA.
Investors await expected midweek remarks from central bank leaders, including Fed Chairman Jerome Powell and European Central Bank chief Christine Lagarde. They will also get another update on U.S. economic growth on Wednesday when the Commerce Department releases a first-quarter gross domestic product report.
Wall Street is also gearing up for the latest round of corporate earnings in the coming weeks, which will help paint a clearer picture of how companies are coping with pressure from rising costs and consumers cutting back on some spending. .
Sports footwear and apparel giant Nike fell 7% after giving investors a cautious update on the potential impact on earnings due to lockdowns in China. The company depends on China for about 17% of its revenue, according to FactSet.
Wynn Resorts rose 3.2% and Las Vegas Sands gained 4%. The companies, which have major gambling businesses in China, received a boost after China eased a quarantine requirement for people arriving from overseas.
Technology and communications companies were among the biggest losers on Tuesday. Microsoft fell 3.2% and Apple 3%. Alphabet, Google’s parent company, fell 3.3%.
Energy stocks made strong gains as US crude oil prices rose 2%. Hess rose 5.6% for the biggest gain in the S&P 500.
The yield on the 10-year Treasury note, which helps set mortgage rates, held steady at 3.19%. Foreign markets have increased.