North American stock markets ended sharply lower on Tuesday, with the Nasdaq closing at its lowest since December 2020, as investors worried about slowing global growth and a more aggressive Federal Reserve.
The tech-heavy Nasdaq index has now fallen 22% from its record high close last November, meeting the definition of a bear market which begins with a decline of 20% from recent highs.
The Canadian benchmark stock index was swept up in the selling, falling for its fifth day in a row and hitting its lowest level in nearly three months.
Tesla contributed more than any other stock to the S&P 500 and Nasdaq’s steep declines. Tesla slumped 12% after investors worried that chief executive Elon Musk might sell some of his stake in the electric car maker to help pay for his $44 billion deal to buy Twitter, announced on Monday.
Previously-prized growth stocks have been hammered in recent weeks as investors fret about the impact of higher interest rates on their future earnings.
China’s COVID-19 led lockdown and an aggressive pivot by major central banks to fight inflation have overshadowed what has been a better-than-expected quarterly earnings season so far.
Alphabet Inc and Microsoft Corp both dropped almost 4% ahead of their results after the closing bell. Alphabet fell another 6.5% in extended trade after its quarterly report disappointed investors. Microsoft, despite beating earnings expectations, fell more than 2% in the post market.
Apple, Wall Street’s most valuable company, fell 3.7% in Tuesday’s session ahead of its report on Thursday.
About a third of the S&P 500 companies are set to report results this week. Of the 134 companies in the S&P 500 that reported earnings so far, 80.6% topped analysts’ profit expectations, according to Refinitiv data. In a typical quarter, 66% beat estimates.
“Earnings broadly have been pretty good. But it hasn’t really mattered very much to the overall stock story. It’s mainly about the Fed and other central banks, and now China and COVID,” said Ross Mayfield, an investment strategist at Baird in Louisville, Kentucky.
“I think with where the market is right now, in this indiscriminate selling and fear phase, I think you’ve got more potential for downside risk than you have for an upside surprise,” Mayfield said.
The S&P 500 consumer discretionary index lost 4.99% and was among the worst of 11 sector indexes, pulled lower by Tesla, and also by a 4.6% decline in Amazon.
The S&P 500 energy index was the only sector to rise, ending up 0.05% as oil prices rebounded following reports that Russian gas supplies to Poland would be halted Wednesday, a development viewed as an escalation of tensions between Russia and the West over Ukraine.
The Dow Jones Industrial Average fell 2.38% to end at 33,240.18 points, while the S&P 500 lost 2.81% to 4,175.2.
The Nasdaq Composite dropped 3.95% to 12,490.74.
General Electric Co tumbled more than 10% after forecasting full-year earnings at the low end of its previous estimate.
United Parcel Service Inc fell 3.5% despite reporting a rise in quarterly adjusted profit, while U.S. hospital operator Universal Health Services Inc slumped nearly 9% after its earnings missed estimates.
In Canada S&P/TSX composite index ended down 321.08 points, or 1.5%, at 20,690.81.
“The risks in the market seem to be taking on a life of their own,” said Colin Cieszynski, chief market strategist at SIA Wealth Management. “Some investors are starting to head for the exits.”
The Toronto market’s technology sector fell 3.7%, while heavily-weighted financials ended 1.8% lower.
The industrials group was down 1.7%, weighed by a 7.3% decline for shares of Air Canada after the airline reported a larger-than-expected quarterly loss and said it is adding capacity to meet a rebound in spring traffic.
Energy was a bright spot, gaining 0.8% as oil prices rallied. U.S. crude oil futures settled 3.2% higher at $101.70 a barrel.
Volume on U.S. exchanges was 12.3 billion shares, compared with a 12.6 billion average over the last 20 trading days. Declining issues outnumbered advancing ones on the NYSE by a 4.71-to-1 ratio; on Nasdaq, a 4.82-to-1 ratio favored decliners. The S&P 500 posted no new 52-week highs and 45 new lows; the Nasdaq Composite recorded 24 new highs and 646 new lows.
U.S. Treasury yields slid on Tuesday as uncertainties surrounding the war in Ukraine and Federal Reserve efforts to bring down inflation kept investors cautious ahead of an expected hike in interest rates next week.
The yield on benchmark 10-year Treasury notes slid 5.5 basis points to 2.772%. Canadian bond yields were also lower.
U.S. data released on Tuesday, including business spending and consumer confidence, was relatively strong, but people are more concerned about the future than good job growth and demand, said Stan Shipley, fixed-income strategist at Evercore ISI.
“Yields are going down because people are scared about the future, so they’re scared we are slipping into recession or slow economic growth,” Shipley said.
“With the Fed going to have to raise interest rates a lot and with the war going on and high oil prices, in late 2022 or early 2023 we may witness a recession.”
Policymakers will meet May 3-4 when they are expected to raise rates by 50 basis points and announce plans to begin reducing the Fed’s $8.9 trillion balance sheet.
How the markets respond next week is unclear, even as Fed Chair Jerome Powell has spelled out the U.S. central bank’s plans to aggressively tackle inflation, said Kevin Flanagan, head of fixed-income Strategy at WisdomTree Investments.
“The Fed has raised rates once, by a quarter point. We are one rate hike removed from a zero-interest rate policy,” he said. “Now it comes down to Powell & Co. actually making their actions match their words and market expectations.”
New orders for U.S.-made capital goods rebounded more than expected in March, a sign that business spending on equipment ended the first quarter with strong momentum, Commerce Department data showed.
Orders for non-defense capital goods excluding aircraft increased 1.0% last month, or double the forecast of economists polled by Reuters. These so-called core capital goods orders fell 0.3% in February.
Other data showed a dip in consumer confidence in April but it remained above pandemic lows, while plans to buy a house climbed despite soaring mortgage rates and record house prices.
Reuters, Globe staff
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