Wall St collapses as rising yields weigh on growth stocks

  • Home Depot drops as fiscal year profit forecast disappoints
  • Meta-platforms rise as Facebook tests subscription service
  • US business activity is recovering to its highest level in eight months
  • Indexes down: Dow 1.61%, S&P 1.63%, Nasdaq 2.02%

Feb 21 (Reuters) – Wall Street’s major stock indices fell on Tuesday, dragged by megacap names, after data showing a recovery in business activity in February fueled fears the Federal Reserve would have more room to raise rates to keep inflation under control.

Tesla Inc (TSLA.O), Amazon.com Inc (AMZN.O), Microsoft Corp (MSFT.O) and Google parent company Alphabet Inc (GOOGL.O) fell between 1.7% and 3.2% as the US benchmark 10-year Treasury yields hit a new three-month high. [US?]

Higher yields tend to weigh on growth stocks, whose valuations are typically based on future earnings that are heavily discounted as interest rates rise.

The S&P Global Purchasing Manufacturer’s Index showed that US business activity rebounded to an eight-month high in February from 46.8 in January to 50.2, supported by a robust services sector, according to a study.

“This data (company activity) does not diminish fears that the Fed could be more aggressive and might want to raise interest rates than what investors thought a month ago,” said Brian Jacobsen, senior investment strategist. at Allspring Global Investments.

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US equities started the year on a bullish note after their worst full-year earnings in more than a decade in 2022 as investors hoped the central bank’s rate hike cycle was coming to an end.

However, recent economic data points to a resilient economy, with inflation far from the Fed’s 2% target, raising the likelihood of two or three 25 basis point hikes.

Money market participants see the Fed fund rate hit a high of 5.35% in July and stay near those levels throughout the year.

At 12:43 a.m. ET, the Dow Jones Industrial Average (.DJI) was down 543.47 points, or 1.61%, at 33,283.22, the S&P 500 (.SPX) was down 66.45 points, or 1, 63%, at 4,012.64, and the Nasdaq Composite (.IXIC) fell 238.52 points, or 2.02%, to 11,548.75.

Home Depot Inc (HD.N) continued to weigh on markets, falling 5.8% to a three-month low after the No. 1 domestic home improvement chain warned of weaker demand and issued a dismal earnings forecast for 2023.

Smaller rival Lowe’s Cos Inc (LOW.N) fell 4.9% ahead of its results next week.

Walmart (WMT.N) forecast full-year earnings below estimates, painting a grim picture of higher-than-expected food inflation straining profit margins. However, the largest retailer in the world added 0.3%.

Analysts expect S&P 500 earnings to grow 1.6% in 2023, compared to an estimated 4.4% growth at the start of the year, according to data from Refinitiv.

Ten of the top 11 S&P 500 sectors fell, with the consumer goods index (.SPLRCD) falling 2.7%.

Meta Platforms Inc (META.O) added 0.5% after Facebook’s parent company said it was testing a monthly subscription service called Meta Verified, which allows users to verify their accounts with a government ID and get a blue badge.

Falling issues outnumbered progress for a 6.17-to-1 ratio on the NYSE and 4.24-to-1 ratio on the Nasdaq.

The S&P index recorded a new 52-week high and a new low, while the Nasdaq recorded 36 new highs and 85 new lows.

Reporting by Johann M. Cherian and Medha Singh; Edited by Saumyadeb Chakrabarty, Arun Koyyur and Anil D’Silva

Our Standards: The Thomson Reuters Principles of Trust.


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