(Reuters) – Wall Street fell on Tuesday as traders, already positioning for another large interest rate hike this week by the U.S. Federal Reserve, drove markets lower after a Detroit titan provided further evidence of inflation slowing down American business.
The benchmark S&P 500 index has lost more than 19% so far this year as investors fear aggressive policy tightening measures by the Fed could tip the U.S. economy into a recession, with recent dire outlooks from delivery firm FedEx Corp and automaker Ford Motor Co adding to woes.
Shares of Ford dropped 11.9% after it flagged a bigger-than-expected $1 billion hit from inflation and pushed delivery of some vehicles to the fourth quarter due to parts shortages.
Rival General Motors Co was also down 5.7%.
Adding to a mixed set of economic data, a Commerce Department report showed residential building permits – among the more forward-looking housing indicators – slid by 10% to 1.517 million units, the lowest level since June 2020.
“Markets have been under some pressure because it’s clear that the economy and the growth rate of earnings are in the process of slowing and going to slow even further,” said Hugh Johnson, chief economist of Hugh Johnson Economics in Albany, New York.
“The concern is that even though it’s slowing, the Federal Reserve will tell us in a very hawkish way that they’re very focused on the 2% rate of inflation and they’re going to continue to lean towards restraint or be very tough until they get to that 2% level.”
The U.S. central bank is widely expected to hike rates by 75 basis points for the third straight time at the end of its policy meeting on Wednesday, with markets also pricing in a 17% chance of a 100 bps increase and predicting the terminal rate at 4.49% by March 2023.
Focus will also be on the updated economic projections and dot plot estimates for cues on policymakers’ sense of the endpoint for rates and the outlooks for unemployment, inflation and economic growth.
“We are going to be in an environment where month-to-month economic data is going to be scrutinized to a greater magnitude than it has been previously,” said Doug Fincher, portfolio manager at Ionic Capital Management.
“The market believes that the Fed will get inflation under control at the expense of the economy. The question is will they achieve this through a soft landing or a hard landing.”
The benchmark U.S. 10-year Treasury yield hit 3.56%, its highest level since April 2011, while the closely watched yield curve between two-year and 10-year notes inverted further. [US/]
An inversion in this part of the yield curve is viewed as a reliable indicator that a recession will follow in one to two years.
By 1:57 p.m. ET, the Dow Jones Industrial Average fell 536.96 points, or 1.73%, to 30,482.72, the S&P 500 lost 70.09 points, or 1.80%, to 3,829.8 and the Nasdaq Composite dropped 182.62 points, or 1.58%, to 11,352.40.
The S&P 500 is trading below 3,900 points, a level considered by technical analysts as a strong support for the index, but which has now been breached twice in the last three sessions.
All of the 11 major S&P sectors declined, with economy-sensitive real estate and materials sectors down 3% and 2.5%, respectively.
Meanwhile, in another sign of nerves around future corporate earnings, Nike Inc was downgraded by Barclays analysts to “equal weight” from “overweight”, citing volatility in the Chinese market due to pressures from COVID-related lockdowns in early September. The sportswear giant’s stock dropped 4.9%.
(Reporting by Devik Jain and Ankika Biswas in Bengaluru and David French in New York; Editing by Shounak Dasgupta, Maju Samuel and Lisa Shumaker)
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