Wall Street’s main indexes tumbled on Monday as heavyweight technology stocks dropped on expectations of a high interest rate environment, which pushed U.S. Treasury yields to fresh two-year highs and supported banks.
Megacap companies including Apple Inc, Amazon.com Inc, Microsoft Corp, Meta Platforms Inc and Tesla Inc fell between 2.1% and 4.4% in early trading.
The S&P 500 consumer discretionary, technology and communication services sectors, housing major growth companies, fell the most among the 11 major S&P sectors.
The value-oriented banks index hit a fresh record high, before retreating.
The S&P 500 and the tech-heavy Nasdaq indexes were on course for their fifth straight day of declines as growth stocks tumbled in the first week of 2022 after investors began to recalibrate their portfolios to account for a more hawkish Federal Reserve.
Goldman Sachs expects the Fed to raise rates four times in 2022, compared to its previous forecast of three, and begin the runoff process for its balance sheet as soon as July.
“Fears about the Fed is the key this morning as it was certainly last week. And you have Goldman now expecting to see four rate hikes in 2022 and that is just a very hostile environment for tech and growth stocks,” said Thomas Hayes, managing member at Great Hill Capital LLC in New York.
Tesla dropped 2.3% after Chief Executive Officer Elon Musk tweeted on Friday that the electric carmaker will raise the U.S. price of its advanced driver assistant software.
Microsoft fell 2.7% after a media report that the software company has been losing its augmented-reality talent to peers like Meta Platforms.
Traders have ramped up their rate hike expectations this year after the U.S. central bank’s minutes from the December meeting suggested an earlier-than-expected rise in rates.
Markets are now expecting a greater than 70% chance of an interest rate rise to 0.25% in March and at least two more hikes by year end.
The benchmark 10-year Treasury yield hit 1.80% in early trading – a level last seen in early 2020. It shot up 25 basis points last week in its biggest move since late 2019.
Investors await inflation data this week for cues on consumer and producer prices, and whether they will sway the trajectory of the Fed’s interest rate hikes.
At 10:10 a.m. ET, the Dow Jones Industrial Average was down 411.10 points, or 1.13%, at 35,820.56, the S&P 500 was down 71.67 points, or 1.53%, at 4,605.36, and the Nasdaq Composite was down 326.10 points, or 2.18%, at 14,609.80.
Sportswear giant Nike fell 4.1% after HSBC downgraded the stock to “hold” along with peer Adidas due to persistent supply chain issues.
Declining issues outnumbered advancers for a 4.10-to-1 ratio on the NYSE and for a 4.44-to-1 ratio on the Nasdaq.
The S&P index recorded 35 new 52-week highs and four new lows, while the Nasdaq recorded 53 new highs and 467 new lows.
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