On Tuesday, Wall Street experienced a sharp decline, primarily driven by weakness in megacap growth companies like Apple and the chip sector, which weighed heavily on the Nasdaq ahead of significant economic data releases and remarks from Federal Reserve Chair Jerome Powell.
The Dow Jones Industrial Average plummeted by 404.64 points, or 1%, to 38,585.19, while the S&P 500 slid by 1.2%, and the Nasdaq dropped by 1.7%.
Although data indicated a slight slowdown in US services industry growth in February, with a decline in employment, a measure of new orders surged to a six-month high, suggesting underlying strength in the sector. Despite the Federal Reserve’s implementation of 525 basis points worth of interest rate hikes since March 2022, the PMI remained consistent with continued economic expansion.
However, another survey revealed that new orders for US-manufactured goods experienced a more significant decline than expected in January.
The recent AI-driven rally on Wall Street lost momentum at the beginning of this week as investors shifted their focus to new indicators regarding the Fed’s monetary policy trajectory. Signs of persistent inflation in February tempered hopes of imminent interest rate cuts, prompting investors to reassess their positions.
On Monday, the benchmark S&P 500 reached a fresh intraday record high before closing slightly lower in anticipation of Federal Reserve Chair Jerome Powell’s testimony before lawmakers on Wednesday and Thursday.
According to Kevin Gordon, senior investment strategist at Charles Schwab, some investors may be taking profits in high-flying areas and adopting a cautious stance ahead of Powell’s remarks and the release of labor market data. Craig Fehr, head of investment strategy at Edward Jones in St. Louis, suggested that recent rallies and the prospect of upcoming economic data contributed to a risk-off sentiment on Tuesday.
Despite recent market weakness, traders are still anticipating a 67.2% chance of the first rate cut this year occurring in June, as indicated by CME Group’s FedWatch tool.
Major movers in the market included Apple, which slid 2.8% following a research report showing a 24% year-on-year decline in iPhone sales in China. Other megacap growth and technology stocks also experienced declines, with Tesla down 3.9% after its European Gigafactory near Berlin halted production due to a suspected arson attack.
Investors are awaiting a slew of employment data in the coming days, including the highly anticipated nonfarm payrolls report.
Amidst market fluctuations, Target saw a significant surge of 12% after forecasting annual comparable sales largely above estimates. The retail giant is banking on same-day services, product launches, and a new membership program to drive spending.
However, Microstrategy faced a notable decline of 21% after announcing a private offering for $600 million in convertible senior notes, with proceeds intended for the purchase of bitcoin.