NEW YORK (AP) — Technology and communications companies lead stocks lower on Wall Street in afternoon trade Tuesday, amid growing fears that lingering inflation could reduce business profits.
The S&P 500 index fell 1% at 3:31 p.m. Eastern time, on track to erase more than half of its gains from a rally the previous day. The Dow Jones Industrial Average fell 29 points, or 0.1%, to 31,865 and the tech-heavy Nasdaq fell 2.6%.
A stern earnings warning from Snapchat’s parent company prompted investors to dump shares of major social media companies. Snap fell 43.9%, while Facebook’s parent company Meta fell 8.4%. Google’s parent company fell 5.6%.
Technology and communication stocks, with their high values, tend to have an outsized influence on the market. The sectors have been responsible for much of the volatility the market has seen recently as well as the widespread decline in major market indices since early April as investors worried about the impact of rising inflation on businesses and consumers.
Retailers and businesses that rely on direct consumer spending also fell sharply. Amazon lost 3.6% and Target fell 2.7%.
Bond yields fell. The 10-year Treasury yield fell to 2.76% from 2.86% on Monday evening.
Falling bond yields have weighed on banks, which rely on higher yields to charge more lucrative interest on loans. Wells Fargo fell 1.6%.
Homebuilders slumped following a government report showing sales of newly built homes were well below economists’ forecasts. KB Home fell 3.4%.
Cruise lines and other travel companies suffered some of the heaviest losses. Carnival fell 11% and Norwegian Cruise Line 12.2%.
Appliance companies and utilities, considered less risky than other sectors, made gains. Campbell Soup rose 2.9% and Duke Energy 2%.
The pile of worries weighing on the market has pushed the benchmark S&P 500 to the brink of a bear market, which is when an index falls 20% from its most recent all-time high. It is down about 18.1% from its record set earlier this year.
Inflation has weighed on a wide range of industries in the form of higher raw material costs and more expensive labour. Many companies have hiked prices of everything from food to clothing to offset the impact of rising costs, but the pressure has grown. Major retailers including Target and Walmart said higher costs were squeezing operations. They also raised concerns that consumers are moderating their spending on a wide range of products.
“When you think about consumer spending, wages are good but inflation is higher,” said Barry Bannister, chief equity strategist at Stifel. “Consumers are in a rush and this affects the entire retail business.”
Consumers were already squeezed by a disconnect between supply and demand when Russia invaded Ukraine and caused energy prices to spike again. US crude oil has risen 51.2% this year, pushing gasoline prices to record highs as trouble at the pump cut spending sharply. Supply chain issues have been compounded by China’s recent lockdown in several major cities as it deals with rising COVID-19 cases.
Wall Street is also worried about the Federal Reserve’s plan to fight inflation. The central bank is raising interest rates aggressively from historic lows, but investors fear it may go too far in raising rates or act too quickly. This could slow businesses down and potentially trigger a recession. Fed Chairman Jerome Powell acknowledged that high inflation and economic weakness overseas could thwart central bank efforts to cool the economy and rein in inflation without tipping into a recession.
On Wednesday, investors will get a more detailed look at the Fed’s decision-making process with the release of minutes from the latest policy meeting.
“Until oil cracks and the Fed pauses, it’s hard for the market to get any upside,” Bannister said.
Veiga reported from Los Angeles.
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