US equities fell on Tuesday as increased interest rates continued to weigh on market mood and the latest round of retail reports stoked concerns about the consumer’s health.
The Dow Jones Industrial Average closed at 33,129.59, down 697.10 points, or 2.06%. This was the index’s worst drop since December 15, when it dropped 2.3%. The S&P 500 lost 2.0% to settle at 3,997.34, its lowest day since December 15, when it fell 2.5%. All sectors finished down, with consumer discretionary stocks falling the most (3.3%).
The Nasdaq Composite, which is dominated by technology, fell 2.50% to 11,492.30.
The 10-year Treasury yield increased to 3.9%, while the 2-year rate increased to 4.7%. As traders faced hotter-than-expected inflation statistics, both rates reached levels not seen since November. Traders are concerned that persistent inflation may force the Federal Reserve to maintain interest rates higher for longer, perhaps tipping the economy into recession.
“I think it’s the equity markets that finally caught up to what the Treasury markets have been saying for a couple of weeks,” said B. Riley Wealth’s chief market strategist, Art Hogan. “We’ve had a string of better-than-expected economic data.” “With every new data point, we saw a tick up in yields in the Treasury market.”
Hogan went on to say that, rather than a single large event, the cumulative effect of the data and the Fed’s rhetoric forced investors to take note.
“Now, I think the equity market is catching up to the fact that the Fed speakers mean business, and this data may well mean higher interest rates for longer…”It’s just a catch-up that was overdue,” he continued.
Home Depot was the worst-performing Dow component, falling 7% after the home improvement retailer reported lower-than-expected fourth-quarter revenue. The corporation also provided a gloomy forecast.
The Fed is expected to issue the minutes from its January 31-February 1 meeting on Wednesday. During the meeting, the Fed raised interest rates by 25 basis points.