The three major U.S. stock indexes swung lower Tuesday, with losses piling up as investors keep an eye on rising inflation.
It was a second consecutive day of losses for Wall Street, which has been rattled in recent weeks by the rising price of goods across the economy and the potential for interest rate increases that would raise the cost of borrowing.
What began as a Big Tech sell-off spread to the broader market, with Dow names such as Home Depot skidding nearly 3.1 percent, and Chevron and American Express retreating by more than 2.6 percent, dragging the index down to its worst day since February. Tesla fell sharply before recovering somewhat, finishing the day down about 1.9 percent.
Even after a standout earnings season led by Apple, Amazon, Microsoft and other stalwarts, tech names have sold off as bullish investors grapple with inflation jitters, Dan Ives, an analyst at Wedbush Securities, wrote in an email to The Washington Post. But he said that shouldn’t trigger alarm bells.
“The tech bears are saying inflation is looming and the WFH trade is done with rotation fears crushing tech stocks, which we believe creates a long term buying opportunity rather than a time to panic.”
Some Wall Street watchers have already priced in strong earnings results, experts say, setting their expectations for robust quarters ahead. And as markets this year have punched through multiple all-time highs, despite broader uncertainty tied to the pandemic and to the future of President Biden’s agenda, investors are pushing pause amid sky-high valuations.
Since last spring, stocks have been buoyed by the extraordinary interventions of the Treasury and the Federal Reserve to shore up the economy after the initial shocks of the coronavirus pandemic. After Biden’s inauguration and the expansive rollout of multiple coronavirus vaccines, the market has continued to climb as investors focus on widespread reopenings.
But the broader optimism about the recovery has been checked by an array of economic roadblocks.
“Mounting inflation concerns are continuing to fuel investor uneasiness as the country grapples with shortages across the supply chain and stoking fears that companies will be forced to hike prices as a result and pass those price increases down to consumers,” said Nicole Tanenbaum, partner and chief investment strategist at Chequers Financial Management.
Even as demand for products surges, the squeeze on raw materials and components is raising concerns that manufacturers won’t be able to make much ground on the backlogs, slowing the pace of the recovery, she said.
Fed officials have repeatedly stressed that their robust support will stay in place until they can point with confidence to a repaired labor market and improvement in other areas of the economy. Leaders have kept rates near zero and continue to buy at least $120 billion of Treasury bonds and mortgage-backed securities each month. Federal Reserve Chair Jerome H. Powell and other central bank officials are working to see major progress in the labor market, which is still down millions of jobs since February last year.
But those commitments to keep rates low are pressing up against fears that a sharp increase in inflation could prompt the Fed to trim its aggressive monetary policies ahead of schedule. Still, any plans from the Fed to shift policy will come with advance warning, Powell has said.
“Equities are under pressure as investors assess the impact that a potential easing of policy could have on the markets, particularly the tech sector, which has led the recent sell-off as higher interest rates reduce the value of their future earnings,” Tanenbaum said.
