The technology-heavy Nasdaq fell about 4% and retreated further into bear territory. It’s now a 22% discount at the high level, and it was a 52-week low on Tuesday. S&P fell by 2.8 per cent.
After Federal Reserve Chairman Jerome Powell last Friday indicated that there will likely be aggressive rate hikes next month, the Dow index fell around 980 points, or 2.8%. The rate hikes are intended to dampen runaway inflation, but investors are more worried that a rise in interest rates will slow down consumer consumption and the housing market, heralding the next recession.
Rapidly growing technology stocks are closely linked to Federal Reserve decisions. These price-sensitive companies have high price-to-earnings ratios because they are typically valued at future profits and do not pay dividends. Higher rates mean that future earnings will be worth less than they are today.
The cyclical shares also fell on Tuesday. Dow component 3M fell nearly 3% and UPS shares fell more than 3%, even though both companies beat earnings expectations.
General Electric plunged nearly 10% after warning that its outlook for 2022 was “trending towards the low end of the range.”
Asian markets also withdrew on Tuesday as economic closures in China, triggered by the country’s zero-Covid policy, disrupted global supply chains. China is a major customer in the US technology and semiconductor market.
Investors also remain concerned about the geopolitical unrest associated with Russia’s invasion of Ukraine. A Russian top official said on Tuesday that the threat of nuclear war is real.