U.S. stocks were mixed early Tuesday morning with the Dow in positive territory, while the Nasdaq and S&P 500 were significantly lower as investors continue to express fear of additional sharp interest-rate increases by the Federal Reserve.
Those fears are taking some of the wind out of this summer’s stock-market rally.
The Dow Jones Industrial Average tumbled more than 600 points on Monday as investors looked ahead to a Friday speech by Fed Chairman Jerome Powell in Jackson Hole, Wyo., in which he is expected to give an update on the central bank’s efforts to combat inflation.
Monday’s selloff came after U.S. stocks snapped a four-week stretch of gains for the S&P 500 on Friday. The market climbed from July to mid-August on hopes that inflation has started to peak, which would allow the Fed to soften its stance, as well as on generally strong corporate earnings.
But Fed officials have remained publicly hawkish, leading some investors to conclude that the rebound was premature. The market’s outlook also remains highly uncertain as investors weigh positive news — such as strong job growth — against worries that Fed tightening could tip the economy into recession.
“The market wants the Fed to sound off on the dovish standpoint, but the Fed’s not there yet,” said Philip Blancato, chief executive of Ladenburg Thalmann Asset Management. “The market got a little ahead of itself.”
The Dow fell 643.13 points on Monday, or 1.9%, to close at 33063.61. The S&P 500 dropped 90.49, or 2.1%, to 4137.99. The technology-focused Nasdaq Composite slid 323.64, or 2.5%, to 12381.57.
Even with the recent pullback, all three major indexes are up at least 5.8% over the past three months. Futures markets show traders are split as to whether the central bank will raise interest rates by half a percentage point or three-quarters of a point at its next meeting in September.
Aggressive increases could cause businesses and consumers to cut back on spending, potentially hurting corporate earnings and economic growth.
“Jackson Hole is something the market is starting to get nervous about,” said Hani Redha, a portfolio manager at PineBridge Investments. After the last Fed meeting, some investors expected it to ease up on rate hikes, he said. “There is chatter that perhaps Powell will try to reverse that perception,” he added.
Investors are also concerned about a key number set to be released Friday: The Commerce Department’s personal-consumption-expenditures index, a measure of core inflation that excludes volatile food and energy costs. The index is seen as the Fed’s preferred measure of inflation and could impact Powell’s calculations.
Meanwhile, Asian shares were mostly lower Tuesday.
Benchmarks in Asia slid in Tokyo, Sydney, Seoul and Hong Kong, but shares were little changed in Shanghai.
The latest market slide comes as investors grapple with uncertainty over when the highest inflation in decades will ease significantly, how much the Fed will have to raise interest rates in order to get it under control and how much the rate hikes will slow the economy.
Japan’s benchmark Nikkei 225 lost 1.2% in afternoon trading to 28,454.45. Australia’s S&P/ASX 200 slid 1.1% to 6,971.10. South Korea’s Kospi dipped 1.1% to 2,435.26. Hong Kong’s Hang Seng shed 0.8% to 19,509.56, while the Shanghai Composite was little changed, inching up less than 0.1% at 3,278.64.