Dow loses 200 points, Nasdaq drops 2% as investors fear Fed rate hikes will slow the economy

Dow loses 200 points, Nasdaq drops 2% as investors fear Fed rate hikes will slow the economy

Stocks fell on Tuesday as Federal Reserve Governor Lael Brainard indicated the central bank could take a more aggressive approach to its tightening policy.
The Dow Jones Industrial Average lost 300 points, or 0.8%, while the S&P 500 fell 1.3% after posting two straight days of gains. The Nasdaq Composite shed 2.3%, stepping back a 1.9% pop in the prior session. The major indices hit session lows in the final hour of trading.
Tech stocks were among the biggest losers of the day led by chip stocks like Nvidia, Some believe this group could be hurt the most by the Fed’s hiking campaign as investors take less risk and buy stocks with steady profits, rather than growth shares promising big earnings down the road.
Meanwhile, sectors like utilities and healthcare moved higher with drugmakers Johnson & Johnson and Pfizer rising more than 1.5% and staples like Procter & Gamble and Walmart were also higher. Meanwhile, cruise stocks like Carnival, Norwegian Cruise Line, and Royal Caribbean added 1%.
“The way the market is acting today, the playbook is defense with commodities linked sectors outperforming, while technology underperforms on the concern of high-interest rates,” said Keith Lerner co-CIO and chief market strategist at Trust. “There’s concern about the economy and the fed’s ability to maneuver a soft landing.”
After opening the day slightly positive, stocks fell and rates hit their highs after Brainard, who is typically considered one of the more dovish Fed members, said the central bank needs to shrink its balance sheet “rapidly” to drive down inflation.
“Inflation is much too high and is subject to upside risks,” she said, noting the Fed needed a steady pace of rate hikes as well.
Following her comments, the 10-year Treasury yield jumped to 2.56% and hit its highest level since May 2019.
Recessionary fears continued to spook investors on Tuesday and Deutsche Bank became the first major Wall Street bank to forecast a U.S. recession is ahead, citing the Fed getting more aggressive to fight inflation.
“The US economy is expected to take a major hit from the extra Fed tightening by late next year and early 2024,” the bank’s economists said in a note to clients Tuesday. “We see two negative quarters of growth and a more than 1.5% pt rise in the US unemployment rate, developments that clearly qualify as a recession, albeit a moderate one.”
As the Russia-Ukraine war continues, investors watched Ukrainian President Volodymyr Zelenskyy for a Nuremberg-like tribunal to hold Russia accountable for alleged war crimes, during an appearance before the United Nations Security Council on Tuesday.
Oil prices gave up earlier gains on Tuesday, with West Texas Intermediate dipping 0.5% at $102.76 per barrel and Brent crude falling 0.4% to $107.10. The market has been volatile since the onset of the war amid concerns over supply disruptions.
Tuesday’s moves come as investors await the release of Federal Reserve meeting minutes on Wednesday. Those minutes come from last month’s meeting when the central bank hiked rates for the first time in years and indicated six more hikes were ahead this year.
Meanwhile, investors are preparing for the first-quarter corporate earnings season, which is set to begin next week.
“Ultimately, the way this is going to work, the economy is going to slow, the stock market has to reflect that,” Mark Zandi, chief economist at Moody’s Analytics told CNBC’s “Power Lunch” on Tuesday. “So I do expect the stock market to have a tough few months here as it ultimately adjusts to what the Fed is doing and will do going forward.”

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