U.S. stocks fell on Tuesday, adding to an early week rout as investors digested economic warnings from banking heavyweights and pondered the impact of upcoming Federal Reserve policy.
The S&P 500 (^GSPC) fell 1.4%, while the Dow Jones Industrial Average (^DJI) was down 1%, or more than 350 points. The tech-heavy Nasdaq Composite (^IXIC) fell 2%.
Wall Street failed to recover from a rout in Monday’s session, as stocks fell as investors scrutinized the first releases of a week full of economic data. Overall, the S&P 500 had its sixth down day in the past seven trading sessions, according to Bespoke Investment Group.
On Tuesday, the biggest Wall Street bank executives struck a downbeat note for next year as inflation hits consumer demand. Bank of America CEO Brian Moynihan told investors at a Goldman Sachs financial conference that Bank of America̵[ads1]7;s research shows “negative growth” in the first part of 2023, but he added that the contraction will be “mild.”
Separately, Goldman Sachs CEO David Solomon told Bloomberg that he sees economic growth slowing and smaller bonuses and even possible job cuts on the horizon.
Economic data readings have pointed to continued resilience in various pockets of the economy, but this led to intense market fixation around the risk that the Federal Reserve will continue to raise interest rates through the next year.
Fed officials, including Chairman Jerome Powell, have widely hinted that the central bank will shift down to a half-point move at their meeting next week after four consecutive 75-basis-point hikes. But last week’s employment report showed strong job gains and robust wage growth, the opposite of what the Fed wants to see in its fight against inflation.
A smaller increase would signal a new phase of the central bank’s tightening campaign, but heightened wage pressures could lead more officials to raise their benchmark federal funds rate above 5% next year, which is currently expected by Wall Street.
“In light of the various releases, expectations for the Fed’s terminal rate priced for May 2023 rose 9.5 basis points on the day to 5.01%, crossing the 5% threshold again,” Jim Reid and colleagues at Deutsche Bank wrote in an early morning note Tuesday.
“That’s a noticeable shift from where it was just before Friday’s jobs report, when it hit a low of 4.83%, and means that most of the moves lower following Chairman Powell’s Wednesday speech have now reversed,” he added.
Officials will get another reading on inflation on Dec. 13, the first day of the Fed’s two-day policy meeting, when the Labor Department releases the consumer price index for November.
December has gotten off to a rockier start in markets as investors “relax consensus macro positions this year, which have followed since the chilly CPI print in mid-November,” according to Mike Gormley, Equity Institutional Sales at JPMorgan.
In commodity markets, oil prices continued to trade lower on Tuesday, with WTI crude at $74.43 a barrel. Oil’s recent drop has come even amid the latest moves by OPEC and its Russian-led allies to stay on course with output cuts, and as Chinese officials have tentatively eased COVID restrictions that have eroded consumption from the world’s biggest importer.
In bond markets, the yield on the US 10-year Treasury fell back to 3.52% on Tuesday. The dollar rose.
In corporate news, PepsiCo ( PEP ) plans to eliminate hundreds of jobs at the headquarters of its North American snacks and beverages divisions, The Wall Street Journal reported. The move follows other companies, including Walmart ( WMT ) and Ford ( F ), which have trimmed the jobs of white-collar workers amid economic uncertainty.
In other words:
GitLab ( GTLB ) shares rose 9.5% after the company posted third-quarter earnings that beat Wall Street expectations and raised its 2023 revenue forecast.
Fanatics raised roughly $700 million from a range of new and existing investors in a round that values the company at $31 billion, the Wall Street Journal reported.
Apple ( AAPL ) plans to scale back ambitious self-driving plans for its future electric vehicle and postponed the car’s launch date, Bloomberg reported.
And on the political front, Georgia voters cast ballots Tuesday in another runoff race that will determine whether Democratic Sen. Raphael Warnock can edge Republican challenger Herschel Walker. Although the Democrats have already taken control of the Senate, both parties have devoted great resources to the fight.
“Senate seats only come up every 6 years with only a third of the chamber elected each time, a win for either side would make it easier for them to gain control in the 2024 and 2026 elections as well, since that Georgia seat would not be on election again until 2028,” Reid and colleagues at Deutsche Bank wrote in a note.
Meanwhile, President Joe Biden visited TSMC’s ( TSM ) facility in Arizona on Tuesday as the Taiwanese chip maker said it would triple its planned investment there to $40 billion. Joining Biden on his visit were Apple CEO Tim Cook, TSMC founder Morris Chang, the head of chipmaker Micron Technology Inc. ( MU ) CEO Sanjay Mehrotra, and NVIDIA ( NVDA ) founder and CEO Jensen Huang, among others, said The White House .
Dani Romero is a reporter for Yahoo Finance. Follow her on Twitter @daniromerotv
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