Dow Falls Nearly 200 Points As ‘Gloomy’ Investors Brace For Higher Interest Rates

Topline

The stock market fell in volatile trading on Tuesday, adding to sharp losses in recent weeks as investors assessed the latest round of better-than-expected economic data, which points to more aggressive interest rate hikes from the Federal Reserve.

Key Facts

The Dow Jones Industrial Average was down 0.6%, nearly 200 points, while the S&P 500 lost 0.4% and the tech-heavy Nasdaq Composite 0.7%.

Markets initially opened higher after the holiday weekend but soon turned negative despite more strong economic data that showed that the U.S. services sector grew at a faster rate than expected in August.

Combined with a stronger-than-expected jobs report last Friday, the solid economic data has now led investors to bet on the Federal Reserve hiking interest rates more aggressively and for a longer period of time until inflation subsides.

Rates on government bond yields surged, adding pressure to the selloff in stocks as the ten-year Treasury note jumped as high as 3.35%, while the two-year Treasury rose to as much as 3.51%.

The technology and energy sectors led the market declines, with some of the only bright spots Tuesday coming from real estate, utilities and healthcare stocks.

Shares of struggling retailer Bed Bath & Beyond, meanwhile, fell by another 18% after CFO Gustavo Arnal died by suicide over the weekend, with the company announcing an interim appointment on Tuesday.

Crucial Quote

“Market psychology is very gloomy—whether it’s for fundamental or seasonal reasons, people aren’t all that eager to buy the dip, especially after the failure of Friday’s post-jobs rally (although there isn’t aggressive selling taking place either),” says Vital Knowledge founder Adam Crisafulli.

Key Background

Stocks were down again Tuesday after the post-jobs report rally on Friday fizzled out in dramatic fashion, with the Dow ending the day 300 points lower. Markets have seen a string of losses in recent weeks, as investors grow more concerned about aggressive interest rate hikes from the Federal Reserve plunging the economy into a recession. After three straight weeks of declines, the S&P 500 is now down over 18% for the year, not far off from its low point in mid-June.

What To Watch For

“While we got some welcome news in Friday’s jobs report, more evidence of falling inflation will take time to materialize,” according to experts at LPL Financial. “The good news is a seasonally strong fourth quarter is right around the corner.”

Further Reading

Dow Falls Over 300 Points Despite Solid Jobs Report, Stocks Post Third Straight Week Of Losses (Forbes)

The Stock Market’s Summer Rally Is Over And Investors Should Prepare For A Rough September (Forbes)

Dow Falls 300 Points, Bond Yields Surge As Investors Bet On More Rate Hikes (Forbes)

Market Experts Predict Further Volatility As Fed Rate Hikes Leave ‘Little Room’ For Soft Landing (Forbes)

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