U.S. stocks tumbled on Tuesday as concerns about the cost of infrastructure spending and potential tax hikes to pay for President Joe Biden’s $1.9 trillion relief bill weighed on investors who also fear further downside in the market.
Remarks by Treasury Secretary Janet Yellen that the U.S. economy remains in crisis from the pandemic as she defended developing plans for future tax increases to pay for the new public investments put investors on alert.
Yellen spoke at a hearing of the House Financial Services Committee where Federal Reserve Chair Jerome Powell also addressed the committee.
Talk of the government’s infrastructure plans unnerved investors who are concerned the stock market is trading at elevated valuations, said Rick Meckler, partner at Cherry Lane Investments in New Vernon, New Jersey.
“There’s a little bit of concern of getting out ahead of a potential selloff that could be on the horizon,” Meckler said. “Any feeling that it could be on the horizon is causing people to pull the trigger pretty quick on these down moves.”
Stocks had been trading near break-even in seesaw trade before turning sharply lower about 45 minutes before the close.
Powell told U.S. lawmakers that a coming round of post-pandemic price hikes will not fuel a destructive breakout of persistent inflation – fears that had sparked a recent rise in yields and caused technology shares to sell off.
Oil prices that slumped more than 3% on worries that new pandemic curbs and slow vaccine rollouts in Europe will slow a recovery in demand helped push the energy sector lower.
Falling yields on 10-year U.S. Treasury notes from a 14-month highs last week have deflated this year’s outperformance in the financial (.SPSY) and energy (.SPNY) sectors.
Conversely, technology-related shares that had recently declined sharply on the rising rate environment had recuperated a bit as yields eased, said Peter Tuz, president of Chase Investment Counsel in Charlottesville, Virginia.
“A lot of these (tech) stocks have seen 10% to 20% corrections and interest rates have backed off a bit,” Tuz said. “The money seems to be going back into them and out of the groups that did extremely well the last three months, specifically financials and energy.”
The benchmark S&P 500 and the blue-chip Dow have rallied about 80% from their pandemic lows of a year ago, while the tech-heavy Nasdaq more than doubled in value.
Small cap stocks (.RUT), which had outperformed this year, along with financials, energy and international stocks, fell 3.5% in the biggest single-day decline since Feb. 25.
The CBOE volatility index (.VIX) eased to its lowest level in 13 months before jumping about 11% on the day. Wall Street’s so-called fear gauge still hovers near pandemic lows.
The Dow Jones Industrial Average (.DJI) fell 308.05 points, or 0.94%, to 32,423.15 and the S&P 500 (.SPX) lost 30.07 points, or 0.76%, to 3,910.52. The Nasdaq Composite (.IXIC) dropped 149.85 points, or 1.12%, to 13,227.70.
Volume on U.S. exchanges was 12.10 billion shares, compared with the 14.04 billion average for the full session over the last 20 trading days.
Shares of GameStop Corp (GME.N) dropped 6.5% ahead of the company’s fourth-quarter results due later on Tuesday. The videogame retailer announced the exit of its chief customer officer in the latest sign of a broader overhaul into an e-commerce firm.
ViacomCBS Inc tumbled 9.1% after the media firm launched $3 billion stock deals to raise capital for investments in streaming.
U.S.-listed shares of Chinese internet search provider Baidu Inc (BIDU.O) slid 1.7% following a flat Hong Kong debut as investors were wary of a fundraising flurry in the city and questioned the company’s growth plans.
Declining issues outnumbered advancing ones on the NYSE by a 3.42-to-1 ratio; on Nasdaq, a 6.64-to-1 ratio favored decliners.
The S&P 500 posted 11 new 52-week highs and no new lows; the Nasdaq Composite recorded 45 new highs and 99 new lows.