Wall Street plunged on Tuesday, with weakness in megacap growth companies such as Apple and the chip sector weighing on the Nasdaq ahead of this week’s crop of economic data and remarks from Federal Reserve Chair Jerome Powell.
The Dow Jones Industrial Average tumbled 404.64 points, or 1%, to 38,585.19, the S&P 500 slid 1.2%, and the Nasdaq was down 1.7%.
Data showed US services industry growth slowed a bit in February amid a decline in employment, but a measure of new orders increased to a six-month high, pointing to underlying strength in the sector.
The PMI was consistent with continued economic expansion despite 525 basis points worth of interest rate hikes from the Fed since March 2022.
Another survey showed new orders for US-manufactured goods dropped more than expected in January.
An AI-fueled rally on Wall Street ran out of steam at the start of this week as focus turns to fresh cues on the Fed’s monetary policy path after signs of sticky inflation in February dampened hopes of early interest rate cuts.
The benchmark S&P 500 hit a fresh intraday record high on Monday before closing slightly lower in the run up to Powell’s testimony before lawmakers on Wednesday and Thursday.
“Maybe some people are taking chips off the table, taking some profits in the high flying areas, in conjunction with what is probably justified nerves before Powell speaks and before we get the big slew of labor market data,” said Kevin Gordon, senior investment strategist at Charles Schwab.
Two reports helped to create a risk-off tone, said Craig Fehr, head of investment strategy at Edward Jones in St. Louis.
Fehr also attributed some of Tuesday’s weakness to recent rallies. The benchmark S&P 500 had hit a fresh intraday record high on Monday before closing slightly lower.
“It’s reasonable and even healthy to take some pit stops along the way. This market is, to a degree, stopping for a breather after what’s been a very sharp run higher,” he said.
Traders see a 67.2% chance of the first rate cut this year arriving in June, as per CME Group’s FedWatch tool.
Among major movers, Apple slid 2.8% after a research report showed iPhone sales in China fell 24% year-on-year in the first six weeks of 2024 as the company faced increased competition from domestic rivals such as Huawei.
Other megacap growth and technology stocks also declined, with Tesla down 3.9% after its European Gigafactory near Berlin halted production after a suspected arson attack.
A raft of employment data, including the crucial nonfarm payrolls report, is also due in the coming days.
Target jumped 12% after the big-ticket retailer forecast annual comparable sales largely above estimates, betting on same-day services, product launches and a new membership program to boost spending.
Microstrategy shed 21% after the bitcoin development company announced a private offering for $600 million in convertible senior notes, with proceeds to be used to buy bitcoin.
