Slumping technology stocks pull Wall Street lower
NEW YORK Wall Street lost more ground Tuesday amid growing concerns that high inflation will affect corporate profits.
The S&P 500 dropped 0.8% while the Nasdaq fell 2.3%. The Dow Jones Industrial Average saw a 0.2% increase, thanks primarily to the big gains of McDonald’s and UnitedHealth.
The broader market was weighed down by big technology and communications companies, but some selling eased by the afternoon. A stark profit warning from Snapchat’s parent company scared investors into selling stocks of major social media companies. Snap plummeted 43.1%, its biggest single-day drop ever, while Facebook’s parent, Meta, slumped 7.6%. Google’s parent dropped 5.1%.
Technology stocks and communications stocks with their high-valued values tend to have a large influence on the market. These sectors are responsible for much volatility in the market, as well as the large declines that major indexes have experienced since April. Investors worry about the impact of rising inflation and on consumers and businesses.
The pullback halted a broad rally that occurred a day earlier, a sign of how volatile trading was during this year’s market slump.
” “People are still having trouble finding the one or two catalysts that give enough confidence to take on risks assets, given the uncertainty,” said Sameer Smana, senior global market strategist at Wells Fargo Investment Institute.
The S&P 500 fell 32. 27 points to 3,941.48. The Dow gained 48. 38 points to 31,928. 62, and the Nasdaq slid 270. 83 points to 11,264.45.
Smaller stock prices also fell. The Russell 2000 dropped 27. 94 points, or 1.6%, to 1,764.83.
The pile of concerns weighing on the market has pushed the benchmark S&P 500 to the brink of a bear market, which is when an index falls 20% from its most recent record high. It is down roughly 18% from its record high set earlier this year.
Inflation has weighed on many industries through higher raw material costs and more expensive labor. Many businesses have increased prices on everything, from food and clothing, to offset higher costs. But the pressure is increasing. Target and Walmart are two of the major retailers that have stated that higher costs are making it difficult to run their businesses. They also expressed concern that consumers are reducing their spending on a wide variety of goods.
“When we think about consumer spending, wages and inflation are equal,” stated Barry Bannister (chief equity strategist at Stifel). “Consumers are squeezed and that’s affecting all of retail.”
Consumers were already getting squeezed by a supply and demand disconnect when Russia invaded Ukraine and prompted another jump in energy prices. U.S. crude oil is up about 50% this year and that has pushed gasoline prices to record highs, with pain at the pump cutting into spending for many. Supply chain problems were worsened by China’s recent lockdown in several major cities as it deals with rising COVID-19 cases.
Wall Street also worries about the Federal Reserve’s plan for fighting inflation. Investors are concerned that the central bank could move too fast or go too far in raising interest rates from their historic lows. This could cause businesses to slow down and possibly lead to a recession. Jerome Powell, Fed Chair, has admitted that high inflation and economic weakness abroad could hinder the central bank’s efforts to cool down the economy and curb inflation. However, the central bank will not be able to tip into a recession. Investors will have a better look at the Fed’s decision-making process Wednesday when minutes from the most recent policy meeting will be released.
“Until oil starts to crack and the Fed stops, it is difficult for the market’s upside to grow,” Bannister stated.
Retailers, and companies that rely heavily on direct consumer spending, were among the biggest decliners on Tuesday. Target dropped 2.6% and Amazon fell 3.2%.
Bond yields fell. The yield on the 10-year Treasury fell to 2. 76% from 2. 86% Monday late.
Banks were hit hard by falling bond yields. They rely on higher yields in order to charge more profit on loans. Wells Fargo fell 1.2%.
Homebuilders slumped following a government report showing that sales of newly built homes fell far short of economists’ forecasts. KB Home fell 2.7%.
Cruise Lines and other travel-ralate firms suffered the most severe losses. Carnival slid 10.3% and Norwegian Cruise Line fell 12%.
Utilities and household goods companies, which are less risky than other industries, saw gains. Campbell Soup saw a 3.5% increase and Duke Energy saw a 2% increase.
Veiga reported from Los Angeles.
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