The losses are led by mega cap tech stocks as investors await key corporate earnings reports this week. First quarter results from Microsoft and Google’s parent company Alphabet will be released after the bell today.
The tech-heavy Nasdaq dropped about 2.6%, further retreating into bear-market territory, and the S&P fell by 1.6%.
After Federal Reserve chairman Jerome Powell indicated last Friday that there will likely be aggressive interest rate hikes next month, the Dow fell about 980 points, or 2.8%. The Fed hikes are meant to quell runaway inflation, but investors are more worried that an interest rate spike will slow consumer spending and the housing market, ushering in the next recession.
Fast-growing tech stocks are closely linked to the whims of the Fed. These rate-sensitive companies have high price-to-earnings ratios because they’re usually valued on future profits and pay no dividends. Higher rates mean that future earnings are worth less than they are today.
Cyclical stocks also dropped on Tuesday. Dow component 3M fell nearly 3%, as did UPS shares, although both companies beat earnings expectations.
General Electric plummeted more than 11% after warning that its 2022 outlook was “trending toward the low end of the range.”
Asian markets retreated Tuesday as economic shutdowns in China, the result of their zero-Covid policy, disrupted global supply chains. China is a big customer of the US tech and semiconductor market.
Investors also remain worried about the geopolitical turmoil linked to Russia’s invasion of Ukraine. A top Russian official said on Tuesday that the threat of nuclear war is real.