Stocks fell on Tuesday, as the market struggled to rebound from Monday’s steep declines that pushed the S&P 500 back into bear market territory and traders braced for a key monetary policy announcement from the Federal Reserve.
The Dow Jones Industrial Average slipped 150 points, or 0.5%, after rising as much as 170 points earlier in the session. The S&P 500 and the Nasdaq Composite dipped 0.3% and 0.2%, respectively, after rallying to start the session.
“This is one of the days where the market is going to have to take a wait-and-see attitude and certainly that’s what seems to be happening in the major indices,” said Art Hogan, chief market strategist at National Securities.
“We’re really stuck in middle ground here,” he added, noting that back and forth swings are not unusual ahead of a major announcement.
Shares of Oracle jumped more than 8% after the software company reported an earnings beat boosted by a “major increase in demand” in its infrastructure cloud business while FedEx shares soared 13% after announcing it would add three new directors to its board. The stock was on pace for its best day in more than 20 years.
Chevron and McDonald’s rose about 2% and 1%, respectively, paring back some of the Dow’s losses. The energy sector jumped 2%, boosted by shares of Occidental Petroleum and Phillips 66, which each rose more than 5%. Dow Transports also inched 2% buoyed by gains from FedEx and CH Robinson and was on pace for its best day since March.
Travel stocks slipped again with shares of Carnival and Norwegian Cruise Line down more than 1%. Airline stocks Delta and United also dipped about 1%. Meanwhile, Coinbase shares shed 4% after the company said it will cut 18% of its workforce.
The moves followed Monday’s intense sell-off that saw the S&P 500 slump 3.9% to its lowest level since March 2021 and close in bear market territory for the first time since 2020. During that last bear market, the S&P 500 lost 33.9% before recovering, according to data compiled by S&P Dow Jones Indices. The data also showed that bear markets on average last more than 18 months.
Meanwhile, the Dow tumbled 2.8% on Monday, putting it roughly 17% off its record high. The Nasdaq Composite dropped nearly 4.7% and is now more than 33% off its November record.
Those losses came as expectations grow for the Fed to hike rates more than initially anticipated. CNBC’s Steve Liesman reported Monday that the Fed will “likely” consider a 75-basis-point increase, which is greater than the 50-basis-point hike many traders had come to expect. The Wall Street Journal reported the story first.
Traders now see a more than 90% chance of a 75-basis-point rate hike at this week’s Fed meeting, which concludes Wednesday, according to the CME Group’s FedWatch tool that measures pricing in the fed funds futures markets.
That change in Fed policy expectations sent rates surging, with the 10-year rate briefly topping 3.4% on Monday. The benchmark rate eased back to about 3.32% on Tuesday.
“The move in the 10-year Treasury yield toward 3.5% shows the market’s fear that the Fed may fall further behind the curve is increasing,” wrote UBS strategists led by Mark Haefele. “In turn, this will give the Fed less room to ‘declare victory’ and ease off on rate hikes. As a result, the risks of a Fed-induced recession have increased, in our view, and the chances of a recession in the next six months have risen.”
Investors digested another important inflation reading of May’s producer price index on Tuesday. It showed wholesale prices rise 10.8% and hover near a record pace.
Sarah Min contributed reporting.