Stocks fall for the second straight day, led down by tech
Stocks on Wall Street closed lower Tuesday as a late sell-off in technology companies helped nudge major stock indexes into the red for the second straight day.
The Standard & Poor’s 500 index ended down 0.9%, with most of the pullback coming in the last hour of trading. Shares of Apple, Facebook and Alphabet, Google’s parent company, declined 1% or more as technology stocks fell broadly. Although they powered the market rebound last year, tech stocks are up only 2.6% this year, the lowest gain among the S&P 500’s 11 sectors.
Banks, industrial firms and communication companies also helped drag the market lower, easily outweighing small gains by healthcare stocks and others. Energy companies fell the most as the price of U.S. crude oil slid 1.2%. Treasury yields held steady.
Investors continued to size up company earnings reports, including quarterly snapshots from Walmart and Home Depot.
Wall Street is also weighing the possibility of more inflation this year and economic recovery as the COVID-19 pandemic eases in the United States. That balancing act has contributed to a market pullback this month.
“Stocks appear to be in consolidation mode, digesting strong year-to-date gains on the heels of a superb first-quarter reporting period,” said Terry Sandven, chief equity strategist at U.S. Bank Wealth Management. “We view this pullback that we’re experiencing over the last week or so as within the normal ebb and flow of a broad market that still has legs to trend higher.”
The S&P 500 fell 35.46 points to 4,127.83. The Dow Jones industrial average fell 267.13 points, or 0.8%, to 34,060.66. The tech-heavy Nasdaq slipped 75.41 points, or 0.6%, to 13,303.64. The Russell 2000 index of small-company stocks declined 16.24 points, or 0.7%, to 2,210.88. Each of the indexes had been in the black earlier in the day.
The broader market made solid gains early this year as investors bet on an economic recovery fueled by widespread COVID-19 vaccinations. Expectations were high for corporate earnings, and the latest round of results has been surprisingly good. Wall Street is now digesting that growth and shifting to a more cautious view.
“Some sort of pause was always inevitable,” said Ross Mayfield, investment strategist at Baird. “Eventually, markets see a more challenging landscape ahead and general uncertainty.”
Investors have been worried about whether rising inflation will endure. Prices of food, gasoline and other items are rising as the economy recovers from its more than yearlong malaise.
The acceleration in prices, which has been building for months, has unsettled financial markets and raised concerns that it could weaken the economic recovery from the pandemic recession.
The fear is that if inflation persists, the Federal Reserve will dial back its extensive support. That includes record-low interest rates and the monthly purchase of $120 billion in bonds meant to goose the job market and economy.
For all the worries about inflation, many professional investors are echoing the Federal Reserve in saying that they expect rising prices to be “transitory.”
“I don’t think we’re entering a new period of structurally higher inflation, but at the same time it’s impossible to say it’s not one of the main risks investors face,” Mayfield said.
Higher interest rates drag on most of the stock market, and they are particularly painful for stocks considered the most expensive and those bid up for profits expected far into the future. This mostly involves technology stocks, which rose sharply last year and are valued highly on the future profits those companies could bring in.
Investors have drawn encouragement from recent company earnings reports.
“By most metrics you’re seeing company financials reflect an economy that’s starting to open up and that’s consistent with economic growth,” Sandven said.
Retailers are among the last companies to report first-quarter results. Several are set to do so this week, including Target and Lowe’s.
On Tuesday, Walmart shares rose 2.2% after the giant retailer announced results that beat estimates as online shopping saw significant growth compared with a year earlier, driven in part by Americans buying online in the pandemic.
AT&T shares fell 5.8%, the biggest decline in the S&P 500, continuing the slide that began Monday after the company announced it would spin off its WarnerMedia assets into a new company with Discovery Communications. AT&T finished acquiring Warner — which includes HBO, CNN and DC Comics — only in 2018, and its new CEO is pulling an about-face on his predecessor’s decisions.
AT&T’s acquisition of Warner should never have been allowed in the first place. AT&T now agrees.
