Traders work on the floor of the New York Stock Exchange on March 20, 2024.
Spencer Platt | Getty Images
The Dow Jones Industrial Average fell for a second day, continuing Wall Street’s lackluster start to the quarter, as bond yields increased and traders lowered expectations that the Federal Reserve would cut interest rates in June.
The 30-stock Dow dropped 425 points, or 1.1%. At its session low, the benchmark was down more than 500 points. The S&P 500 slid 0.9% and the Nasdaq Composite shed 1.2%.
The second quarter for stocks is off to a rough start as sticky inflation data to end last week and some strong economic data Monday sends yields higher and reduces odds the Fed will cut rates in June. Stocks came under pressure Tuesday as the rate on the 10-year Treasury yield jumped to its highest level since Nov. 28. Oil prices also surged to highs last seen five months ago.
“What we’re seeing is a one-two punch with the combination of continued hot inflation data with profit taking,” said Greg Bassuk, CEO of AXS Investments. With “very significant Q1 market gains … we’re due for a little correction. But we think that the investor narrative also continues to be higher for longer with respect to interest rates.”
The S&P 500 is coming off a 10% gain for the first quarter, its best start to a year since 2019, as investors bet inflation would come down enough for the Fed to start cutting rates while the economy keeps growing. The Nasdaq gained 9% in the first quarter on the back of a run in artificial intelligence-related stocks such as Nvidia.
Sarat Sethi, managing partner at Douglas C. Lane & Associates, remained unfazed by the sell-off and called it a “natural digestion” after equities have come up fast and quickly. Sethi said the market remains strong and pointed to pockets of opportunity in sectors outside of technology, such as energy, which was one of two sectors in the green on Tuesday.
Tuesday’s market losses come after February’s core personal consumption expenditures price index released Friday showed a 2.8% annual increase, about even with December and January’s 2.9% rate, and still a ways to go from the Fed’s 2% inflation target. On Monday, the Institute for Supply Management’s manufacturing gauge showed expansion for the first time since Sept. 2022.
Odds for a June rate cut based on fed futures trading are now down to about 58.8%, off from about 70% a week ago. The question now is if the momentum to start 2024 can continue if the Fed stands pat on rates.
Tesla shares slid about 5% after publishing disappointing first-quarter deliveries. Tech-related giants Nvidia, Alphabet and Microsoft, some of this year’s big winners, were down roughly 1%.
Health insurers slid after the Centers for Medicare & Medicaid Services finalized the 2025 rate announcement for Medicare Advantage and prescription drug coverage. In 2025, payments from the government toward these plans are expected to rise 3.7% year over year, unchanged from an earlier proposed rate. Humana lost more than 14%, while UnitedHealth dropped 7.5% and CVS Health tumbled roughly 8%.