Stocks fall on fear the Fed will get even more aggressive to fight inflation, Nasdaq loses 1.8%

Stocks fell on Tuesday as Federal Reserve Governor Lael Brainard signaled that the central bank may take a more aggressive approach to tightening policy to combat inflation.

The S&P 500 index lost 0.8% after two consecutive days of gains. The Nasdaq Composite fell 1.8%, down 1.9% in the previous session. The Dow Jones Industrial Average lost 154 points.

Mark Zandi, chief economist at Moody’s Analytics told CNBC’s “Power Lunch” on Tuesday: “Ultimately this is working, the economy is going to slow down, the stock market has to reflect that. there”. “So I expect the stock market to have a rough couple of months here as it eventually adjusts to what the Fed is doing and will do going forward.”

After a slightly positive start to the day, stocks hit session lows and interest rates hit a high after Brainard, who is generally considered one of the more dovish members of the Fed, say Tuesday that the central bank needs to shrink its balance sheet “quickly” to reduce inflation.

“Inflation is too high and there is a risk of it rising,” she said, noting that the Fed also needs a steady rate of rate hikes.

The 10-year Treasury yield rose to 2.56% following her comments, the highest level since May 2019.

Deutsche Bank on Tuesday became the first major Wall Street bank to forecast a US recession was aheadwith the reason that the Fed is more aggressive to fight inflation.

“The US economy is expected to take a big hit from further Fed tightening late next year and early 2024,” the bank’s economists said in a note to clients on Tuesday. “We’ve seen two quarters of negative growth and the US unemployment rate rise by more than 1.5% pt, developments that would clearly be considered recession, albeit a moderate one.”

Tuesday’s moves come as investors await the release of minutes from the Federal Reserve’s meeting on Wednesday. Those minutes were from last month’s meeting where the central bank raised interest rates for the first time in a year and indicated that there will be six more hikes this year.

Technology stocks were lower, led by chip stocks, consolidating their big gains from Monday. Some believe this group could be harmed the most by the Fed’s bull campaign as investors take on less risk and buy stocks with steady returns, rather than promising growth stocks. great income.

Nvidia lost 3% while Amazon and Tesla were both lower. However, Twitter stock added another 3% to Monday’s 27% gain after Elon Musk said he would join the company’s board of directors a day after revealing the social media giant’s 9.2% stake.

Steady sectors in the slowing economy like utilities and healthcare also edged higher on Tuesday. Drugmakers Johnson & Johnson and Pfizer increased by more than 1.5% and staples such as Procter & Gamble and Walmart also higher. Meanwhile, travel stocks like Carnival, Norwegian Cruise Lineand Royal Caribbean add 1%.

Keith Lerner, co-CIO and chief market strategist at Truist, said: “The way markets are performing today, the book is defensive with commodity-linked industries performing better, while industry ineffective technology due to concerns about high interest rates. “There are concerns about the economy and the ability to maneuver the soft landing of the eater.”

As the Russo-Ukrainian war continues, investors watch Ukrainian President Volodymyr Zelenskyy go to court like Nuremberg to hold Russia accountable for alleged war crimesin an appearance before the United Nations Security Council on Tuesday.

Oil prices gave up earlier gains on Tuesday, with West Texas Intermediate down 0.5% to $102.76 a barrel and Brent crude down 0.4% to $107.10. Markets have been volatile since the war broke out amid concerns about supply disruptions.

The new quarter has begun after the major averages ended their worst quarters in two years. Investors are gearing up for the first-quarter corporate earnings season, which is expected to begin next week.

CNBC’s Patti Domm contributed reporting

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