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US stocks fell early Tuesday In the morning investors expressed concerns about the Federal Reserve’s tightening of interest rates and making borrowing more difficult.
Stocks fell on Monday, continuing to fluctuate on concerns about Fed tightening, the escalation in the Ukraine war and China’s trade policy rocking markets.
The S&P 500 turned lower after opening with slight gains, shedding 27.27 points, or 0.7%, to close at 3,612.39. The Dow Jones Industrial Average fell 93.91 points, or 0.3 percent, to 29,202.88, while the Nasdaq Composite fell 110.30 points, or 1 percent, to 10,542.10. This is the lowest closing value for the tech-heavy Nasdaq since July 2020, according to Dow Jones market data.
Shares of chipmakers have suffered losses stemming from the Biden administration’s new restrictions on semiconductor exports, which are intended to cripple the Chinese military.
The PHLX semiconductor sector fell 3.5% on Monday to its lowest closing level since November 2020. These losses also helped lower shares of companies that use major chips.
“The new restrictions on selling semiconductors to China are a big reason we’re seeing a downtrend in those stocks,” said Randy Frederick, managing director of trading and derivatives at the Schwab Center for Financial Research.
Frederick noted that technology stocks account for about a quarter of the S&P 500 index. Chip maker Qualcomm sank $6.31, or 5.2%, to $114.60 Monday, while Broadcom fell $22.78, or 5%, to $437.70. Technology was the worst performer among the 11 sectors of the S&P 500, down 1.6%.
Shifting expectations of further interest rate increases from the Federal Reserve have been the primary driver of recent stock volatility.
Friday’s jobs report showed that the labor market remained tight as the unemployment rate fell to its lowest level in half a century, exacerbating fears that the Federal Reserve may tighten financial conditions more aggressively.
Hopes for the “Fed Pivot” – where the central bank pauses interest rate increases and stocks rise – have been largely dashed.
Traders are now expecting the benchmark federal funds rate to reach 4.7% by the second quarter of 2023, according to FactSet derivatives data, which is more robust than the Fed itself had forecast.
“Inflation remains high and the labor market is very hot – there is no indication that the Fed will be dovish or pivotal for at least several months,” said Michael Antonelli, market strategist at Baird. Investors are looking forward to the upcoming US inflation data on Thursday as another important indicator of where monetary policy may be headed.
“There are still hangovers in the markets. The US labor market is still incredibly strong, and the Fed has one mandate right now: inflation,” said Fahad Kamal, chief investment officer at Kleinwort Hambros. “The most important number in the world right now,” he said, is the next inflation number.
Meanwhile, most Asian stocks fell on Tuesday as losses in technology-related stocks weighed on global benchmarks.
Taiwan fell 4.4% after reopening from a holiday in the first trading session since the United States imposed new restrictions on exports of semiconductors and chip-making equipment to China. Shares of TMSC, the world’s largest chip maker, fell 8.3%.
Japan’s Nikkei 225 fell 2.6% to 26401.25. South Korea’s Kospi index lost 1.8 percent to 2,192.07 points. Both markets also reopened after Monday’s holiday. Hong Kong’s Hang Seng fell 2.2% to 16,830.73. The Shanghai Composite Index rose 0.2% to 2,979.79, while the Australian S&P/ASX 200 lost 0.3% to 6645.00.
“Japan and South Korea are chasing earlier global market losses, with the tech sector exposed to a greater extent than selling off as reflected in Wall Street,” Yip Jun Rong, market analyst at IG in Singapore, said in a report.
In a bit of encouraging news, Japan reopened its doors to unrestricted tourism in general on Tuesday after more than two years of COVID-19 restrictions. Spent pent-up travel spending could help lift the world’s third-largest economy as it grapples with slowing global growth and inflation.
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