Damian J. Troise
NEW YORK (AP) — More sharp declines in Big Tech stocks sent the Nasdaq composite down 4% Tuesday, the worst drop for the tech-heavy index since September 2020. The Nasdaq is now down 20% so far this year as investors shun the ultra-pricey tech sector, which had made gangbuster gains for much of the pandemic.
With interest rates set to rise as the Federal Reserve steps up its inflation fight, traders are less and less willing to pay the lofty prices they had been paying for Microsoft, Facebook’s parent companay and other tech giants. The S&P 500 fell 2.8% and the Dow Jones industrials lost 2.4%.
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Twitter, Tesla slide after Elon Musk deal
The slide for major indexes follows a mostly weak day on Monday that turned into a late rally, partially led by technology stocks after Twitter agreed to sell itself to Tesla CEO Elon Musk. The social media company fell 2.9% Tuesday, while Tesla slumped 11% over concerns that Musk will be distracted and less engaged in running the electric vehicle maker.
Technology stocks were once again directing the broader market and had some of the biggest losses. Companies in the sector, with their pricey values, tend to push the market up or down more forcefully. Microsoft fell 2.9% and Apple shed 2.8%. Both companies will report their latest financial results later Tuesday.
Retailers and other companies that rely on direct consumer spending also fell broadly. General Motors, which also reports its latest results later Tuesday, slipped 3.8%. Nike fell 5.2%.
General Electric fell 10.4% for one of the sharpest losses on the market after telling investors that inflation and other pressures are weighing on its profit forecast for the year.
China COVID outbreaks weigh on stocks
Bond yields fell. The yield on the 10-year Treasury fell to 2.77% from 2.82% late Monday.
Energy companies gained ground along with a 3% rise in U.S. crude oil prices. Valero Energy rose 4.8%.
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The last few days have been volatile as Wall Street also tries to assess how China’s strict lockdown measures to fight COVID-19 will impact the broader global economy, including hurting demand in the world’s second-largest economy. It could be prompting a resetting of expectations while Wall Street is also still focused on the Federal Reserve’s plan to raise its benchmark interest rates this year.
“The market had gotten comfortable, to an extent, with the Fed, but when you layer on demand destruction in China, it’s a little much for the market to stomach,” Mayfield said.
Investors watch Facebook and other corporate earnings
Earnings remain a key focus of Wall Street for the rest of the week. Airplane maker Boeing reports its results on Wednesday, along with Facebook parent, Meta. Industrial bellwether Caterpillar reports its results on Thursday, along with McDonald’s and Amazon.
Investors are closely reviewing the latest round of corporate report cards to get a better sense of how different industries are handling rising inflation, which has prompted many companies to raise prices. The results will also give a clearer picture of how consumers are reacting to higher prices on everything from food to clothing and gasoline.
In economics news, the Conference Board reported that consumer confidence dampened slightly in April but remains high. And on Friday the Commerce Department releases its personal income and spending report for March.
Persistently rising inflation has prompted the Fed to shift its monetary policy in order to aggressively fight inflation. The chair of the Fed has indicated the central bank may hike short-term interest rates by double the usual amount at upcoming meetings, starting next week. It has already raised its key overnight rate once, the first such increase since 2018.
Economists and investors are concerned that the U.S. economy might slow sharply or even fall into a recession because of the big interest-rate increases the Fed is expected to push through.