Dow Falls More Than 470 Points on Renewed Inflation Fears

Stocks fall Tuesday on renewed anxiety about the prospects of higher inflation.
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Stocks ended sharply lower Tuesday on renewed anxiety about the prospects of higher inflation.

The Dow Jones Industrial Average fell 473 points, or 1.36%, to 34,269, and the S&P 500 dropped 0.87%. At one point during the session, the Dow was down 667 points, or 1.9%.

The Nasdaq declined 0.09% but came off steeper lows from earlier in the session as the market selloff broadened beyond the tech sector.

Stocks in the energy, industrial and financial sectors were among the underperformers on Tuesday.

"Given that equity markets are still in shouting distance of all-time highs, it is not surprising to see investors hit pause and evaluate the various catalysts for the next move higher in stock prices," said Brian Price, head of investment management for Commonwealth Financial Network. "For the time being I think that investors may remain on edge until there is more certainty from Washington regarding fiscal policy."

Stocks finished lower Monday and the tech-heavy Nasdaq tumbled 2.55% on worries about higher inflation. The Nasdaq sank as prices of commodities such as copper and iron ore surged.

The Federal Reserve has tried to assure Wall Street that any bump higher in inflation - which is affecting everything from food prices to shipping costs to commodities - would be transitory. 

But the fear among investors is that price pressures will force the central bank to raise interest rates and taper its monthly asset purchases sooner than it has signaled.

Investors will be giving even greater importance to the release Wednesday of the consumer price index. CPI data are forecast to show a year-over-year gain of 3.6% in April, though comparisons are skewed by the pandemic in 2020.

Tech investors haven't been willing to wait for further inflation data. They have been dumping growth stocks that are most sensitive to higher interest rates and have been pivoting to cheaper value stocks.

"Tech stocks are selling off despite a stabilized and substantially decreased 10-year Treasury yield because tech stocks were never going down because of a 10-year Treasury yield at 1.8% vs. 1.6% - tech stocks were and are going down because they are overpriced," said David Bahnsen, chief investment officer of Bahnsen Group in Newport Beach, Calif.

Oil prices were higher Tuesday as Colonial Pipeline, the largest U.S. oil-products pipeline, expected to be mostly back online by the weekend after a ransomware cyberattack on Friday forced its shutdown.

Tesla  (TSLA) - Get Report declined 1.9% following a Reuters report that said the electric vehicle company halted plans to buy land to expand its Shanghai plant and make it a global export hub because of uncertainty created by tensions between the U.S. and China.

ARK Innovation ETF  (ARKK) - Get Report, Cathie Wood's flagship fund, which plunged to a six-month low during Monday's tech selloff, ended up 2.1% in trading Tuesday.

Palantir  (PLTR) - Get Report turned higher Tuesday, finishing up 9.4%, after posting sales that beat analysts' forecasts and saying it sees stronger growth ahead.