Major US stock benchmarks ended mixed on Tuesday, with the Dow Jones Industrial Average posting a fourth straight day of losses, on the eve of a key inflation reading.
How did the stock indices perform?
Dow Jones Industrial Average DJIA
it fell 84.96 points, or 0.3%, to close at 32,160.74, in a fourth straight day of losses that marked its biggest four-day percentage decline since the tranche ending Oct. 29, 2020.
The S&P 500SPX
it gained 9.81 points, or 0.2%, to finish at 4,001.05, snapping a three-day losing streak.
The Nasdaq Composite COMP
it advanced 114.42 points, or 1%, to finish at 11,737.67, also snapping a three-day losing streak.
On Monday, the Dow Jones Industrial Average fell 654 points, or 2%, while the S&P 500 fell 3.2%, to close below the 4,000 threshold and at its lowest level since March 31, 2021. The Nasdaq Composite plunged 4.3% to its lowest level since November 2020.
What drove the markets?
The stock market has been in turmoil as investors assess whether the US economy will have a “soft” or “hard” landing as the Federal Reserve seeks to rein in high inflation by raising interest rates, according to Steve Chiavarone, senior portfolio manager and boss. of multi-asset solutions at Federated Hermes.
“It’s a leap between two right now,” Chiavarone said, in a telephone interview Tuesday. “Volatility is going to reign for some time.”
Under a so-called soft landing, the Federal Reserve manages to control inflation without causing a recession, while a hard landing involves the central bank controlling inflation through aggressive rate increases that trigger an economic downturn. Under a third scenario, stagflation, the Fed tightens monetary policy enough to trigger a recession, but not yet enough to control inflation, according to Chiavarone. He said “the market is trying to figure out which of the three is more likely.”
Read: Investors haven’t started to price in the recession: Here’s how the S&P 500 could fall
Uncertainty around the economic outlook as the Fed continues an aggressive cycle of rate hikes and other measures aimed at reining in inflation that is at its highest point in more than four decades has unsettled investors, analysts say. .
“Markets are clearly confused about what the Fed will do this year and how aggressive it will get. That can be seen in the volatility in expectations of where the fed funds rate will be at the end of 2022, as seen in fed funds futures. And it is reflected in the volatility of the stock market, with the VIX above 30,” Kristina Hooper, chief global market strategist at Invesco, said in a note.
The VIX is the Cboe VIX volatility index,
a measure of the expected volatility of the S&P 500 over the next 30 days, which trades above its long-term average of around 20.
If anything, corporate earnings news since Monday’s close has been negative, with sharp earnings-related declines for companies including lending platform Upstart Holdings Inc. UPST,
online marketplace Groupon Inc. GRPN
and fuel cell manufacturer Plug Power Inc. PLUG.
Watch: Emerging Stocks Could Lose More Than Half of Their Value as Earnings Highlight ‘Perfect Storm of Headwinds’
“You will continue to see companies like Peloton PTON
be punished for earnings failures,” Tim Pagliara, president and chief investment officer of CapWealth Advisors, said by phone Tuesday. “I wouldn’t get too excited about anything that’s going on in the broader market because there’s still a lot of danger” in individual stocks that have been “very, very overvalued.”
The broader issue facing the market is that the Federal Reserve will continue to tighten until it sees signs that inflation is under control, and there is no sign that it will be soon.
The ICE US Dollar Index DXY,
a measure of the currency against a basket of six major rivals, rose about 0.3% on Tuesday as Treasury yields continued to retreat from 3-1/2-year highs, with the rate on the 10-year note BX :TMUBMUSD10Y
falling 9 basis points to 2,990%.
“There is a potential catalyst this week, which could eventually slow the market sell-off: US inflation data due out on Wednesday. The consumer price index is expected to have eased to 8.1% in April from 8.5% a month earlier. Softer inflation is the only thing that could give investors hope,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.
Read: Under pressure due to inflation, Biden criticizes Republicans for ‘ultra-MAGA’ plan that would ‘raise taxes on working families’
Which companies were in focus?
AMC Entertainment Holdings Inc. Stock AMC
fell 5.4% after the theater chain operator and darling of meme stocks produced a better-than-expected first quarter.
Interactive Platoon Inc. PTON
Shares fell 8.7% after the connected exercise company fell short on its most recent financial results and presented a dovish outlook.
Novavax Inc. Stock NVAX
it rose 1.1% after the biotech company reported its first profitable quarter, but not as much as Wall Street expected, and its sales also fell short of estimates.
Tesla Inc. TSLA
suspended production at its Shanghai plant, this time due to supply problems, Reuters reported late Monday. The shares gained 1.6%.
Pfizer Inc. PFE
said on Tuesday that it has reached a definitive agreement to acquire Biohaven Pharmaceutical Holding Company Ltd. BHVN
for $11.6 billion in cash. Shares of Biohaven soared 68.4%, while shares of Pfizer rose more than 1.7%.
How did other assets fare?
Oil futures lose ground, with US benchmark CL
ending more than 3% below $99.76 a barrel, falling below the $100 threshold for the first time since April 27. GC00 Gold Futures
fell, with gold for June delivery closing nearly 1% lower at $1,841.00 an ounce.
The Stoxx Europe 600 XX:SXXP
closed 0.7% higher, while the London FTSE 100 UK:UKX
The Shanghai Composite CN:SHCOMP
rose 1.1%, while the Hang Seng HK:HSI Index
fell 1.8% and Japan’s Nikkei 225 JP:NIK
—Steve Goldstein contributed to this report.