NEW YORK (AP) — Stocks fell sharply on Tuesday as Wall Street, increasingly worried about a slowing economy, awaited a widely expected interest rate hike by the Federal Reserve in its bid to quell the highest inflation in decades.
The S&P 500 fell 1.1% as more than 90% of stocks and every sector in the benchmark index lost ground. The Dow Jones Industrial Average and Nasdaq composite also fell 1%.
The sales happened while the traders were waiting how high the Fed will raise interest rates at the meeting, which will conclude on Wednesday. The central bank is expected to announce a significant interest rate hike of three-quarters of a point, the third such increase in a row. Investors will also be listening closely to Fed Chairman Jerome Powell to see how aggressively the Fed will move next to rein in inflation.
“The market is definitely preparing for the worst and you’re seeing a little bit of selling pressure,” said Paul Kim, CEO of Simplify ETF.
The S&P 500 fell 43.96 points to 3,855.93, while the Dow lost 313.45 points to 30,706.23. The Nasdaq lost 109.97 points and closed at 11,425.05.
Retailers, technology stocks, healthcare companies and banks were among the biggest weights in the market. Best Buy fell 4.1%, Microsoft fell 0.8%, Abbott Laboratories fell 1.7% and JPMorgan Chase closed 2% lower.
U.S. crude oil prices fell 1.5% and weighed on energy stocks. Exxon Mobil fell 0.8%.
Shares of smaller companies fell more than the broader market. The Russell 2000 dropped 25.34 points, or 1.4%, to 1,787.50.
Bond yields mostly rose. The yield on the 10-year Treasury note, which influences mortgage rates, rose to 3.56% from 3.52% late Monday and traded at its highest level since 2011.
The yield on 2-year Treasuries, which tends to match expectations for Fed action, was steady at 3.95%, hovering near its highest level since 2007.
Stocks fall and Treasury yields rise as the Fed raises borrowing costs in hopes of slowing the hottest inflation in four decades. Aggressive rate hikes by the central bank sent tremors through the markets, especially as Fed officials signaled their determination to keep raising rates until they are confident inflation is under control.
In a speech last month, Powell bluntly warned that rate hikes “will hurt.”
“He’s done everything he can to make it clear that this is going to be another aggressive move,” said Liz Young, SoFi’s head of investment strategy. “He was clear as a bell about what they were focused on.”
The Fed is expected to raise its key short-term rate by a significant three-quarters of a point for the third time at its meeting on Wednesday. That would lift the prime rate, which affects many consumer and business loans, to a range of 3% to 3.25%, the highest level in 14 years, up from zero at the start of the year.
If the Fed meets expectations for a three-quarters of a point increase, it could send stocks up slightly, reflecting traders’ relief that the central bank did not opt for a 1% hike, Kim said.
Beyond that, investors will be focused on what Powell has to say, both in the Fed’s latest statement on interest rate policy and during the afternoon press conference to see whether the central bank remains primarily focused on reducing inflation, or whether hint the Fed is paying more attention to the impact of higher rates on the economy.
“As long as the Fed continues to play this game of chicken and stick to inflation as its sole mandate, the market will continue to fall,” Kim said.
Wall Street worries that rate hikes could go too far in slowing economic growth and push the economy into recession. Those fears have been heightened by data showing the US economy is already slowing and companies warning of the impact of inflation and supply chain problems on their operations.
Ford fell 12.3% in the S&P 500’s biggest drop since its third-quarter profit outlook was downgraded because parts shortages will leave its lots with 45,000 vehicles left unfinished when the quarter ends on Sept. 30. Last week FedEx and General Electric warned investors about the damage to their business from inflation.
The US is not alone in suffering from runaway inflation or dealing with the effects of efforts to combat high prices.
Central Bank of Sweden raised its key interest rate by a full percentage point to 1.75% on Tuesday, catching almost everyone by surprise as it seeks to reduce inflation, which was measured at 9% in August.
Consumer inflation in Japan jumped to 3% in August, the highest level since November 1991, but well below the 8% plus readings in the US and Europe. The Bank of Japan is set to hold a two-day monetary policy meeting later this week, although analysts expect the central bank to stick with its easy monetary policy.
Next come the rate decisions of Norway, Switzerland and the Bank of England.
Markets in Europe were mostly lower, while markets in Asia strengthened.
Yuri Kageyama and Matt Ott contributed to this report.