U.S. stocks slump for 3rd straight day as investors fret over interest rates
Stocks deepened their late August skid with more losses Tuesday, as Wall Street grapples with the prospect that high interest rates are here to stay until the Federal Reserve brings inflation down.
The S&P 500 fell 44 points, or 1.1%, to close at 3,986, bringing its loss in the past three days to 5.1%. The benchmark index is down 3.5% for the month with one day left in August.
The Dow Jones Industrial Average dropped 1%, while the Nasdaq composite lost 1.1%. Smaller company stocks also fell, dragging the Russell 2000 1.5% lower.
Markets have been weak since Federal Reserve Chairman Jerome Powell indicated Friday the U.S. central bank will stick to a strategy of rate hikes to cool inflation that is at multi-decade highs. That appeared to kill off any speculative hope the Fed might ease off due to signs economic activity is cooling.
Some stocks bucked the trend on Tuesday, such as Best Buy, which ended the day up 1.6% after reporting results for its latest quarter that were much better than analysts were expecting. That helped lift the stock prices of other retailers.
Energy companies fell along with the price of crude oil.
Fed is firmly fixed on reducing inflation
Lower stock markets and weakness in consumer spending "are not enough to blow the Fed off its tightening course," said Chris Turner of ING in a report.
Investors worry rate hikes by the Fed and by central banks in Europe and Asia might derail global economic growth.
Fed officials point to a strong U.S. job market as evidence the biggest global economy can tolerate higher borrowing costs. Some acknowledge a recession is possible but say that might be necessary to extinguish surging inflation.
The Fed has raised interest rates four times this year. The latest two were by 0.75 percentage points, three times its usual margin.
Some investors had hoped that the Fed would ease up if inflation subsides. That sentiment led to a rally for stocks in July and early August.
Investors expect another large hike at the Fed's September meeting, though the likelihood of such a big increase is smaller following weaker-than-forecast July retail sales.
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The Fed's preferred gauge of inflation decelerated last month, while other data shows consumer spending slowed. Wall Street will get several more updates on the economy this week.
In energy markets, benchmark U.S. crude lost $2.89 to $94.12 per barrel in electronic trading on the New York Mercantile Exchange. The contract soared $3.95 on Monday to $97.01. Brent crude, the price basis for international trading, shed $2.92 to $101.01 per barrel in London. It jumped $4.10 the previous session to $105.09.
