A sell-off in big tech weighed heavily on stocks, with gains in the broader market sputtering as a report showed Americans became more pessimistic about the economy's prospects.
Traders were hit with another reality check on Tuesday after a troubling reading on consumer confidence. A measure of expectations, which reflects a six-month outlook, has fallen to a nearly decade low. The data comes at a time when analysts are still optimistic about corporate earnings, with net-margin estimates for S&P 500 companies at an all-time high.
The bleak economic picture pushed the US equity benchmark lower, after it had gained more than 1% earlier in the day. The index was hovering near the key Fibonacci 38.2% retracement level of 3,815. Portfolio rebalancing on a quarterly basis exacerbated volatility. The Nasdaq 100 fell more than 3%, dragged down by behemoths such as Amazon.com Inc. and Tesla Inc. Treasury bonds and the dollar both rose.
Margin forecasts are too optimistic, according to Goldman Sachs group inc. strategists, putting stocks at risk of further losses if Wall Street analysts lower their estimates. Meanwhile, HSBC's Kettner stated that equities are still not reflecting the impact of a potential recession, with earnings expectations potentially being revised lower.
Federal Reserve officials downplayed the risk of the US economy entering a recession, despite raising rates by 75 basis points this month and another 75 basis points next month. Both New York Fed President John Williams and San Francisco Fed President Mary Daly acknowledged the need to reduce inflation but insisted that a soft landing was still possible.
A key set of rates that the Fed is focusing on to help judge financial conditions is still a long way from reaching levels that would prompt officials to abandon their tightening plans. adjusted for inflation Rates at the short end of the curve remain below zero, despite real rates on longer-term securities reaching levels not seen since 2019.
Oil rose for a third day as global output threats exacerbated already hot markets for physical supplies, and the Group of Seven agreed to investigate a price cap for Russian crude.