Wall Street’s main indexes fell on Tuesday, dragged by weakness in tech and other growth stocks, after comments from Federal Reserve Governor Lael Brainard spooked investors about potential aggressive actions by the central bank to control inflation.
The tech-heavy Nasdaq posted its biggest daily percentage drop in about a month, with declines in heavyweight stocks such as Apple Inc and Amazon.com Inc.
The TSX also ended with a loss, despite starting the day with a new intraday record high, with energy and materials among the biggest decliners in the Canadian benchmark index. It closed down 154.77 points, or 0.7%, at 21,930.83, after earlier touching a record level of 22,213.07.
At a conference on Tuesday, Brainard said she expects methodical interest rate increases and rapid reductions to the Fed’s balance sheet to bring U.S. monetary policy to a “more neutral position” later this year, with further tightening to follow as needed.
Brainard’s comments “drove home the point that the Fed is poised to get more aggressive,” said Kristina Hooper, chief global market strategist at Invesco.
“That is certainly having a negative effect on equities because of concerns that this increases the probability of a recession,” Hooper said. “It’s going to be increasingly difficult for the Fed to engineer a soft landing the more aggressive it gets.”
The Dow Jones Industrial Average fell 280.7 points, or 0.8%, to 34,641.18, the S&P 500 lost 57.52 points, or 1.26%, to 4,525.12 and the Nasdaq Composite dropped 328.39 points, or 2.26%, to 14,204.17.
Among S&P 500 sectors, technology slumped 2.2% while consumer discretionary fell 2.4%. The utilities sector rose 0.7%.
Canada’s energy sector retreated 1.6% as oil prices fell. U.S. crude oil futures settled 1.3% lower at $101.96 a barrel, pressured by a rising U.S. dollar and growing worries that new coronavirus cases could slow demand.
The materials group, which includes precious and base metals miners and fertilizer companies, lost 2.5%. Gold was down 0.5% at about $1,922 per ounce.
Among the biggest decliners on the TSX was Lithium Americas Corp. It fell 10.6%, giving back some recent gains.
U.S. Treasury yields rose to multi-year highs with yields taking off after Brainard’s comments. Traders focused on the Federal Reserve’s plan for unwinding its balance sheet, with longer-term yields moving more quickly and partly reversing some of the recent inversions in the U.S. curve.
The yield on 10-year Treasury notes was up 13.1 basis points to 2.543% while the 2-year note yield was up 7.2 basis points at 2.500%, leaving the 2-10 spread at 3.97 basis points after having been negative for the most part since last week.
Canadian government bond yields moved higher across the curve, tracking the move in U.S. Treasuries. The 10-year was up 7.5 basis points to 2.551%, just slightly below multi-year highs hit in March.
The prospect of a more hawkish Fed led to a rocky start to the year for equities and in particular for tech and growth shares whose valuations stand to be more pressured by higher bond yields. Stocks have rebounded in recent weeks, with the S&P 500 now down about 5% so far this year.
Focus on the Fed will continue on Wednesday, when the central bank releases minutes of its March meeting.
“For the rest of this week, the market will be driven by interest rates and it will be driven by the Fed’s comments about interest rates,” said Peter Tuz, president of Chase Investment Counsel in Charlottesville, Virginia.
Investors also remain focused on the Ukraine crisis, which has led to rising commodity prices that stand to worsen an already-worrisome inflationary picture.
In economic news, data showed U.S. services industry activity picked up in March, boosted by the rolling back of pandemic restrictions, but businesses continued to face higher costs as supply strains persisted.
In company news, shares of Twitter Inc gained 2%, adding to their prior-day surge, as the social media company said it will offer Tesla CEO and entrepreneur Elon Musk a seat on its board of directors.
Carnival Corp shares rose 2.4% after the cruise operator reported its highest booking week in its history.
Shares of Spirit Airlines soared 22.5% after reports that JetBlue Airways has made an offer to buy Spirit.
Declining issues outnumbered advancing ones on the NYSE by a 4.33-to-1 ratio; on Nasdaq, a 2.96-to-1 ratio favored decliners. The S&P 500 posted 42 new 52-week highs and 8 new lows; the Nasdaq Composite recorded 55 new highs and 100 new lows. About 11.4 billion shares changed hands in U.S. exchanges, compared with the roughly 13 billion daily average over the last 20 sessions.
Reuters, Globe staff
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