U.S. stocks tumbled on Tuesday as concerns about the cost of infrastructure spending and potential tax hikes to pay for President Joe Biden’s US$1.9 trillion relief bill weighed on investors who also fear further downside in the market. Canada’s TSX posted losses as well, with the energy sector taking a hit on a 6% plunge in the price of crude oil.
The S&P/TSX Composite Index fell 149.81 points, or 0.80%, to 18,665.32. The TSX energy sector lost about 4% as oil prices tumbled amid concerns over new pandemic curbs and slow vaccine rollouts in Europe.
Brent crude futures settled down $3.83, or 5.9%, at $60.79 a barrel, after hitting a session low of $60.50. West Texas Intermediate crude (WTI) ended $3.80, or 6.2%, lower at $57.76 a barrel, after touching a low of $57.32. Both benchmarks traded near lows not seen since Feb. 9.
“The road to oil demand recovery appears to be full of obstacles as the world continues to fight the COVID-19 pandemic,” said Bjornar Tonhaugen, head of oil markets at Rystad Energy.
“Oil prices are declining again on Tuesday, proving that last week’s correction was not deep enough and that the market had been trading lately with an excessively bullish sentiment, overlooking the pandemic’s risk.”
Extended lockdowns in Europe are being driven by the threat of a third wave, with a new variant of the coronavirus on the continent. Germany, Europe’s biggest oil consumer, is extending its lockdown until April 18. Nearly a third of France entered a month-long lockdown on Saturday following a jump in cases in Paris and parts of northern France.
A stronger U.S. dollar also weighed on prices, as it usually makes greenback-denominated oil more expensive for holders of other currencies.
On Wall Street, remarks by Treasury Secretary Janet Yellen that the U.S. economy remains in crisis from the pandemic as she defended developing plans for future tax increases to pay for the new public investments put investors on alert.
Yellen spoke at a hearing of the House Financial Services Committee where Federal Reserve Chair Jerome Powell also addressed the committee.
Talk of the government’s infrastructure plans unnerved investors who are concerned the stock market is trading at elevated valuations, said Rick Meckler, partner at Cherry Lane Investments in New Vernon, New Jersey.
“There’s a little bit of concern of getting out ahead of a potential selloff that could be on the horizon,” Meckler said. “Any feeling that it could be on the horizon is causing people to pull the trigger pretty quick on these down moves.”
Stocks had been trading near break-even in seesaw trade before turning sharply lower about 45 minutes before the close.
Powell told U.S. lawmakers that a coming round of post-pandemic price hikes will not fuel a destructive breakout of persistent inflation - fears that had sparked a recent rise in yields and caused technology shares to sell off.
Falling yields on 10-year U.S. Treasury notes from a 14-month highs last week have deflated this year’s outperformance in the financial and energy sectors. Benchmark 10-year U.S. Treasury notes rose 19/32 in price to yield 1.6153%, from 1.682% late on Monday.
Conversely, technology-related shares that had recently declined sharply on the rising rate environment had recuperated a bit as yields eased, said Peter Tuz, president of Chase Investment Counsel in Charlottesville, Virginia.
“A lot of these (tech) stocks have seen 10% to 20% corrections and interest rates have backed off a bit,” Tuz said. “The money seems to be going back into them and out of the groups that did extremely well the last three months, specifically financials and energy.”
The benchmark S&P 500 and the blue-chip Dow have rallied about 80% from their pandemic lows of a year ago, while the tech-heavy Nasdaq more than doubled in value.
Small-cap stocks, which had outperformed this year, along with financials, energy and international stocks, fell 3.5% in the biggest single-day decline since Feb. 25.
The CBOE volatility index eased to its lowest level in 13 months before jumping about 11% on the day. Wall Street’s so-called fear gauge still hovers near pandemic lows.
The Dow Jones Industrial Average fell 308.05 points, or 0.94%, to 32,423.15 and the S&P 500 lost 30.07 points, or 0.76%, to 3,910.52. The Nasdaq Composite dropped 149.85 points, or 1.12%, to 13,227.70.
Declining issues outnumbered advancing ones on the NYSE by a 3.42-to-1 ratio; on Nasdaq, a 6.64-to-1 ratio favored decliners.
The S&P 500 posted 11 new 52-week highs and no new lows; the Nasdaq Composite recorded 45 new highs and 99 new lows.
Spot gold dropped 0.6% to $1,727.71 an ounce..
Read more: Stocks that saw action Tuesday - and why
Reuters, Globe staff
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