U.S. stocks whipsawed early Tuesday morning as investors voice concerns about the Federal Reserve tightening rates and making borrowing more difficult.
Stocks fell Monday, continuing a stretch of volatility as concerns about Federal Reserve tightening, escalation in the Ukraine war, and China-trade policy shake markets.
The S&P 500 turned lower after opening with slight gains, shedding 27.27 points, or 0.7%, to close at 3612.39. The Dow Jones Industrial Average edged down 93.91 points, or 0.3%, to 29202.88 while the Nasdaq Composite fell 110.30 points, or 1%, to 10542.10. That’s the lowest closing value for the tech-heavy Nasdaq since July 2020, according to Dow Jones Market Data.
Shares of chip-manufacturers suffered losses stemming from the Biden administration’s new restrictions imposed on semiconductor exports, aimed at hampering China’s military.
The PHLX Semiconductor Sector dropped 3.5% on Monday to its lowest closing level since November 2020. Those losses also helped drag down stocks for businesses that are major chip users.
“The new restrictions placed on selling semiconductors to China are big reason why we are seeing the downtrend in those stocks,” said Randy Frederick, managing director of trading and derivatives at Schwab Center for Financial Research.
Technology stocks represent about one-fourth of the S&P 500, noted Mr. Frederick. Chip maker Qualcomm sank $6.31, or 5.2%, to $114.60 on Monday while Broadcom fell $22.78, or 5%, to $437.70. Technology was the worst performer among the S&P 500’s 11 sectors, down 1.6%.
Shifting expectations about more interest-rate increases from the Fed have been the primary driver of recent stock-swings.
Friday’s jobs report showed the labor market is still tight as the unemployment rate fell back to a half-century low, exacerbating concerns that the Fed could tighten financial conditions more aggressively.
Hopes for a “Fed pivot” — in which the central bank would pause interest-rate increases and jolt stocks higher — have largely been dashed.
Traders now expect the benchmark federal-funds rate to touch 4.7% by the second quarter of 2023, according to FactSet derivatives data, more aggressive than the Fed’s own forecasts.
“Inflation is still high and the labor market is red hot — there’s nothing to suggest the Fed will be dovish or pivot for at least several months,” said Michael Antonelli, market strategist at Baird. Investors are looking ahead to the next U.S. inflation data release Thursday as another important indicator for where monetary policy might be headed.
“There’s still that hangover in markets. The U.S. labor market is still incredibly strong and the Fed has a single mandate right now: inflation, ” said Fahad Kamal, chief investment officer at Kleinwort Hambros. “The most important number in the world right now” is the coming inflation figure, he said.
Meanwhile, Asian shares were mostly lower on Tuesday as losses in technology-related shares weighed on global benchmarks.
Taiwan dropped 4.4% after reopening from a holiday in the first trading session since the U.S. imposed new limits on exports of semiconductors and chip-making equipment to China. TMSC, the world’s biggest chipmaker, plunged 8.3%.
Japan’s Nikkei 225 declined 2.6% to 26,401.25. South Korea’s Kospi lost 1.8% to 2,192.07. Both markets also were reopening after holidays on Monday. Hong Kong’s Hang Seng dropped 2.2% to 16,830.73. The Shanghai Composite gained 0.2% to 2,979.79, while Australia’s S&P/ASX 200 lost 0.3% to 6,645.00.
“Japan and South Korean markets are catching up to previous global market losses, with their exposure to the tech sector spurring a greater extent of the sell-off as mirrored in Wall Street,” Yeap Jun Rong, a market strategist at IG in Singapore, said in a report.
In a bit of encouraging news, Japan reopened to generally unrestricted tourism on Tuesday after more than two years of COVID-19 restrictions. Pent-up travel spending could help lift the world’s third largest economy as it grapples with slowing global growth and inflation.