Stocks extend 2022 losses as investors brace for rate hikes
Stocks closed broadly lower on Wall Street Wednesday and deepened the losses for major indexes this year following another choppy day of trading.
Stocks bounced between gains and losses throughout the day, largely following the direction of technology stocks, which sold off in the afternoon. The sector has triggered much of the choppiness in the market as investors shift money in expectation of rising interest rates. Higher rates make shares in high-flying tech companies and other expensive growth stocks relatively less attractive.
“We’ve seen some givebacks from the returns we got last year,” said Megan Horneman, director of portfolio strategy at Verdence Capital Advisors. “What we’re seeing is that the market is resetting now.”
The tech-heavy Nasdaq fell 166.64, or 1.1%, to 14,340.26 and is now 10.7% below the all-time high it set on Nov. 19. That decline puts the index in what the market considers a “correction.”
The S&P 500 fell 44.35 points, or 1%, to 4,532.76, with 77% of stocks in the benchmark index losing ground. The only sectors that closed with gains were utilities and household goods makers, signaling a shift to less risky investments by traders. The Dow Jones Industrial Average fell 339.82, or 1.2%, to 35,028.65.
Stocks have slid this month as investors try to gauge how aggressively the Federal Reserve will act to combat inflation. The Fed is already pulling back on bond purchases aimed at holding down long-term interest rates. As of late Tuesday, investors were pricing in a better than 86% probability that the Fed will raise short-term rates at its meeting of policymakers in March. A month ago, they saw less than a 47% chance of that, according to CME Group.
At a Wednesday news conference marking his first year in office, President Joe Biden called on the Fed to do more to fight inflation.
“Given the strength of our economy, and the pace of recent price increases, it’s important to recalibrate the support that is now necessary,” the president said.
The specter of higher interest rates has put the clamps on high-flying growth stocks. On Wednesday, technology giant Apple shed 2.1% and chipmaker Nvidia fell 3.2%. So far this year, the technology sector of the S&P 500 has fallen more than 8%.
Small company stocks, another gauge of confidence in economic growth, fell more than the rest of the market. The Russell 2000 index fell 33.44 points, or 1.6%, to 2,062.78, and is down 8.3% for the year.
Gold prices, which often rise when investors are nervous about risks in the broader market, gained 1.6%. And investors bought bonds, sending the yield on the 10-year Treasury down to 1.85% from 1.87% late Tuesday. The yield began the year around 1.5%.
Investors are busy reviewing the latest round of corporate earnings. Health insurer UnitedHealth Group rose 0.3% after reporting encouraging financial results. Bank of America rose 0.4% after reporting a jump in profits that beat analysts’ forecasts. Both stocks posted solid gains as trading opened but fell back as the broader market turned lower.
Wall Street is closely watching the company reports for signs that inflation is cutting into profit margins and to see whether consumers are accepting higher prices without pulling back on spending. Demand for goods has outpaced companies’ capacity to make and supply products, which has caused supply chain problems and raised raw materials costs.
Household and consumer goods company Procter & Gamble rose 3.4% after reporting strong financial results. The company said consumers have been willing to pay higher prices for dish detergent, diapers and other products and raised its revenue outlook for the fiscal year ending in June.
More big company earnings are on tap for Wall Street on Thursday. American Airlines, Union Pacific, CSX and Netflix will all report their latest financial results.