U.S. stocks are lower on Tuesday as concerns about interest rates remaining high continue to grip Wall Street.
The S&P 500 fell 0.9% in afternoon trading, falling for the second time after hitting a new high at the close of last week.
The Dow Jones Industrial Average also shrunk its all-time high, dropping 481 points (1.2%). As of 1:55 p.m. ET, the Nasdaq Composite Index was down 1.2%.
Health insurance companies led the market decline on concerns about future profits after the U.S. government announced lower-than-expected Medicare Advantage rates.
Humana fell 14.2%.
Tesla, meanwhile, fell 5% after deliveries in early 2024 were far lower than analysts expected.
One of the big reasons the U.S. stock market has been on a near-stop rally since late October is expectations that the Federal Reserve will cut interest rates several times this year.
It has been suggested as well that interest rate easing would reduce pressure on both the economy and the financial system.
But Fed officials also said they needed further confirmation that inflation was falling sustainably toward its 2% target before acting.
A surprisingly strong report on U.S. manufacturing released Monday, showing a return to growth after 16 consecutive months of contraction, hurt those hopes.
This is the latest evidence that the U.S. economy is remarkably resilient, but it could also increase upward pressure on inflation.
Inflation developments have become increasingly difficult of late, with reports this year more grim than expected.
Traders have already sharply lowered their expectations for how many rate cuts the U.S. Federal Reserve will cut this year, halving them from the six they expected at the start of the year.
This would be in line with the three rate cuts that Fed officials themselves have signaled.
Traders temporarily eased their view on only two rate cuts this year, but still largely expect three rate cuts in 2024, according to CME Group data.
This follows reports on Tuesday that U.S. employers advertised about the same number of job openings in February as in the previous month, with factory orders showing stronger-than-expected growth.
With the U.S. economy continuing to perform better than expected, there is a growing possibility that interest rates will be cut only twice this year.
Gargi Chaduri, chief investment and portfolio strategist for the Americas at BlackRock, suggested investors continue to bet on a wide range of investments rather than “timing the market or the Fed.”
In the bond market, the yield on the 10-year U.S. Treasury rose to 4.36% from 4.33% late Monday.
The two-year Treasury yield, which is more closely tied to expectations for Fed action, fell to 4.69% from 4.71% as of late Monday.
High interest rates intentionally slow down the economy by making borrowing more expensive.
Investment prices also fall as it becomes more attractive for investors to put their money into safer alternatives.
Bitcoin fell 6.3%.
In addition to concerns that interest rates will remain high, critics say the U.S. stock market is simply too expensive, having soared more than 20% in six months.
Companies will likely need to see significant profit growth to justify such a big move.
On Wall Street, several health care stocks led the market decline as concerns about future earnings grew.
Analysts at Citi Research said the final Medicare Advantage rate approved by the government was much lower than expected, given rising health care costs and extensive industry lobbying.
UnitedHealth Group fell 7.8% and CVS Health fell 8.1%.
PVH, which owns Calvin Klein and Tommy Hilfiger, lost more than a fifth of its value despite reporting stronger profits than analysts expected in its latest quarter.
Due in part to the slump in the European economy, next year’s profit forecast was lower than analysts’ expectations, and the stock price fell 23.5%.
Among the few stocks that rose on Wall Street were stocks of oil and gas producers. Exxon Mobil rose 1.4% and Marathon Petroleum rose 1.9%.
It followed the rise in crude oil prices.
Benchmark U.S. crude oil rose 1.4% to $84.88 a barrel, returning to October levels.
Brent crude oil, the international standard, rose 1.4% to $88.63 per barrel.
In Europe, Paris stock prices fell 0.9%.
Germany’s DAX fell 1.1% and London’s FTSE 100 fell 0.2%.
In Asia, the index was mixed.
Hong Kong’s Hang Seng rose 2.4%, but movements elsewhere were much more modest.
