Stocks fell to a new low for the year while bond yields surged on Wall Street Tuesday amid renewed jitters that the Federal Reserve will lift interest rates to tackle rising inflation. The S&P 500 fell 85.74 points, or 1.8%, to 4,577.11. The Dow Jones Industrial Average fell 543.34 points, or 1.5%, to 35,368.47. The Nasdaq fell 386.86 points, or 2.6%, to 14,506.90. The Russell 2000 index of smaller companies fell 66.23 points, or 3.1%, to 2,096.23. The major indexes' losses have mounted this month as rising inflation and the virus pandemic’s latest surge cause investors to take caution, the AP reports. Activision Blizzard surged 25.9% on news of a blockbuster deal. Microsoft, which fell 2.4%, is buying the maker of games like Call of Duty and Candy Crush for $68.7 billion.
The Fed has hastened its plan to trim bond purchases and is considering raising interest rates earlier and more often than Wall Street had expected as it moves to curtail inflation, which jumped last month at its fastest pace in nearly 40 years. At the same time, the job market has bounced back from the brief but intense coronavirus recession, leaving the unemployment rate last month at a pandemic low 3.9%, giving the central bank more leeway to rein in the unprecedented support it's been providing the economy since the pandemic struck. Investors are now pricing in a better than 93% probability that the Fed will raise short-term rates in March. A month ago, they saw less than a 47% chance of that, according to CME Group.
While higher rates could help stem the high inflation sweeping the world, they would also mark an end to the conditions that have put financial markets in "easy mode" for many investors since early 2020. Higher rates also make shares in high-flying tech companies less attractive. The sector was the biggest drag on the S&P Tuesday. Apple fell 1.9% and chipmaker Nvidia slid 3.9%. Banks also weighed heavily on the market after Goldman Sachs said its fourth-quarter profit fell by 13% from a year earlier. Goldman shares slumped 7%, while JPMorgan slid 4.2%. Wells Fargo was down 2.3%. Energy futures rose broadly amid supply fears following an attack on an oil facility in the capital of the United Arab Emirates.
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