Dow Drops 697 Points Amid Interest Rate Worries

It was Wall Street's worst day in 2 months
By Newser Editors and Wire Services
Posted Feb 21, 2023 3:48 PM CST
Wall Street Just Had Its Worst Day in 2 Months
Traders work on the floor at the New York Stock Exchange.   (AP Photo/Seth Wenig)

Stocks tumbled to their worst day in two months Tuesday, buckling under worries about higher interest rates and their tightening squeeze on Wall Street and the economy. The S&P 500 fell 81.75 points, or 2%, to 3,997.34 for its sharpest drop since the market was selling off in December. The Dow Jones Industrial Average fell 697.10 points, or 2.1%, to 33,129.59. The Nasdaq composite fell 294.97 points, or 2.5%, to 11,492.3. T reasury yields kept climbing on worries that the Federal Reserve will need to stay aggressive on keeping rates high to fight inflation, the AP reports

Home Depot fell to one of the market's larger losses after giving financial forecasts that fell short of Wall Street’s expectations. It dropped 7.1% despite reporting stronger profit for the last three months of 2022 than expected. The retailer said it would spend $1 billion to increase wages for hourly US and Canadian workers. That fed into broader worries for markets that rising costs for companies have been eating into profits, which are one of the main levers that set stock prices. The other main lever is also looking precarious as interest rates continue to rise. When safe bonds are paying higher amounts of interest, they make stocks and other investments look less attractive.

Rates and stock prices are high enough that strategists at Morgan Stanley say US stocks look to be more expensive than at any time since 2007. Several reports have recently come in on the economy that were stronger than expected. Those allay fears that the economy may soon fall into a recession, which is a positive for the market. But on the negative side, they could also fuel upward pressure on inflation and give the Fed more reason to stick to the "higher for longer” campaign it’s been espousing for rates

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The latest evidence came from a preliminary report Tuesday that suggested business activity is gaining momentum. The services industry likely returned to growth last month and was at an eight-month high, according to S&P Global. Manufacturing, meanwhile, may still be contracting, but the reading hit a four-month high. Such strength has caused the more pessimistic investors on Wall Street to keep their forecasts for a recession but move its timing later into the year.

(More stock market stories.)

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