Dow falls on recession fears
The technology-heavy Nasdaq fell around 3.2%, and retreated further into the bear market’s territory, and S&P fell by 2.1%.
After central bank governor Jerome Powell last Friday indicated that aggressive interest rate hikes are likely to occur next month, the Dow index fell by around 980 points, or 2.8%. The rate hikes are intended to curb current inflation, but investors are more worried that a rise in interest rates will slow down consumption and the housing market, and initiate the next recession.
Fast-growing technology stocks are closely linked to Federal Reserve decisions. These interest rate sensitive companies have high price-to-income ratios because they are usually valued on future profits and do not pay dividends. Higher rates mean that future income will be less valuable than it is today.
Cyclical stocks also fell on Tuesday. The Dow component 3M fell almost 3%, as did the shares in UPS, even though both companies beat earnings expectations.
General Electric plunged more than 11% after warning that the 2022 outlook was “trending towards the low end of the range.”
Asian markets also withdrew on Tuesday when economic shutdowns in China, triggered by the country’s zero-Covid policy, disrupted global supply chains. China is a major customer in the US technology and semiconductor market.
Investors are also still concerned about the geopolitical unrest associated with Russia’s invasion of Ukraine. A Russian top official said on Tuesday that the threat of nuclear war was real.
