A sharp drop in tech stocks dragged U.S. equity markets lower on Tuesday as investors took fright from a report showing U.S. consumer confidence continues to deteriorate.
The tech-heavy Nasdaq Composite index fell 3%, taking its losses for the year to more than 28% after the weaker-than-expected survey sparked concerns about U.S. demand. The S&P 500 index of blue-chip US stocks fell 2%.
The confidence survey released by the Conference Board, an economic research organization, showed that consumers believe prices will continue to rise even if the Federal Reserve tightens monetary policy to curb inflation. The report also showed that consumer outlook on the state of the economy and labor market was the bleakest in nearly a decade.
Expectations for where the US inflation rate will be 12 months from now have hit a record high of 8%. Earlier today, German consumer sentiment, based on economic and income expectations, also dropped to an all time high.
It’s “part of what scares stocks,” said Jack McIntyre, fixed-income portfolio manager at Brandywine Global Investment Group. “A lot of central banks will tighten, including the Fed, in a slowing economy.”
The declines in the United States intensified throughout the trading day, with more than 85% of S&P 500 companies down, including mega-cap technology companies such as Apple, Microsoft and Amazon.
Europe’s regional Stoxx 600 index returned some of its earlier gains to end the day up 0.3%. The FTSE 100 index rose 0.9% in London.
Global stocks had risen following news earlier in the day that China would reduce the mainland’s coronavirus quarantine requirements for all arrivals from 21 days to 10 days. Mainland visitors from Hong Kong will only have to self-isolate for a week.
Hong Kong’s Hang Seng index jumped from a loss to a close up 0.9% after the news, while China’s CSI 300 index of stocks listed in Shanghai and Shenzhen gained 1%.
“The silver lining in the global economy is China. [reopening]said Mary Nicola, multi-asset portfolio manager at PineBridge Investments.
Tuesday’s stock market moves came shortly before the end of the quarter, a time when fund managers typically rebalance their portfolios — a process that can contribute to asset price swings.
“The market is interpreting weak activity data as a sign that central banks will be less hawkish,” said James Ashley, head of international markets strategy at Goldman Sachs Asset Management. “Even if the economy is slowing down, that eases fears of higher interest rates.”
“I’m a bit concerned that the market is downplaying the importance of the inflation numbers for central banks… inflation is the main concern,” he added.
In government debt markets, the yield on the 10-year German Bund, a benchmark for eurozone borrowing costs, rose 0.08 percentage point to 1.62%, reflecting a lower price. of the debt instrument.
Speaking at the European Central Bank’s annual forum in Portugal on Tuesday, the bank’s president, Christine Lagarde, said she would act in a “determined and sustained manner” to tackle inflationary pressures. The ECB has signaled it may go further in September as it tries to rein in inflation, which hit 8.1% in the euro zone in May.
The yield on the 10-year US Treasury fell 0.02 percentage points to 3.18% as stocks sold.
In commodity markets, the price of Brent continued to rise after the G7 indicated it was ready to explore caps on energy costs to limit Russian revenues. The international oil benchmark rose 2.5% to $117.98 a barrel.