A sharp bounce for U.S. stocks after three days of heavy losses was erased Tuesday, with major indexes turning lower on the eve of a key inflation reading.
The Dow Jones Industrial Average
was down 73 points, or 0.2%, at 32,172. The blue-chip gauge rose as much as 506 points at its session high in early activity.
The S&P 500
was down 3 points, or 0.1%, at 3,988.
The Nasdaq Composite
was up 28 points, or 0.2%, at 11,655.
On Monday, the Dow fell 654 points, or 2%, while the S&P 500 declined 3.2%, to close below the 4,000 threshold and at its lowest since March 31, 2021. The Nasdaq Composite plummeted 4.3% to its lowest finish since November 2020.
Over the past three days, the S&P 500 has dropped 7.2% — the biggest three-day decline since March 20, 2020, when the world was confronted with the coronavirus pandemic.
What’s driving markets
The early rise may have given traders hope that a so-called Turnaround Tuesday may materialize. But those hopes were soon dashed, with indexes unable to hold on to early gains.
Uncertainty around the economic outlook as the Federal Reserve pursues an aggressive cycle of rate increases and other measures aimed at reining in inflation running at its hottest in more than four decades has served to unsettle investors, analysts said.
“Markets are clearly confused about what the Fed will do this year and just how aggressive it will get. That can be seen in the volatility in expectations for where the fed funds rate will be at the end of 2022, as seen in fed funds futures. And it is reflected in stock market volatility, with the VIX above 30,” said Kristina Hooper, chief global market strategist at Invesco, in a note.
The VIX is the Cboe Volatility Index
a measure of expected S&P 500 volatility over the next 30 days, which is trading above its long-term mean near 20.
If anything, the corporate earnings news since Monday’s close has been negative, with steep earnings-related declines for companies including lending platform Upstart Holdings
online marketplace Groupon
and fuel-cell maker Plug Power
The broader issue confronting the market is that the Federal Reserve will keep tightening until it sees signs that inflation is getting under control, and there’s no indication that’s anytime soon.
The one asset benefiting is the U.S. dollar
trading around two-decade highs, while gold
is holding its own, and riskier assets including bitcoin
selloff. The dollar rally appeared to cool on Tuesday, while Treasury yields continued a pullback from 3 1/2-year highs, with the rate on the 10-year note
down more than 10 basis points at 2.974%.
“There is one potential catalyzer this week, that could eventually slow down the market selloff: U.S. inflation data due Wednesday. The consumer price index is expected to have eased to 8.1% in April from 8.5% printed a month earlier. A softer inflation is the only thing that could give hope to investors,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.
President Joe Biden is scheduled to speak at 11:30 a.m. Eastern, outlining his administration’s attempts to bring down inflation.
Companies in focus
said Tuesday it has entered a definitive agreement to acquire Biohaven Pharmaceutical Holding Company Ltd.
for $11.6 billion in cash. Biohaven shares jumped 70%, while Pfizer shares rose 1%.