Smaller company stocks also fell. The Russell 2000 gave up 32.90 points, or 1.9 per cent, at 1,738.84. The indexes are all on pace to for losses of 6 per cent or more in June.
Investors face a pervasive list of concerns centring around rising inflation squeezing businesses and consumers. Supply chain problems that have been at the root of rising inflation were made worse over the last several months by increased restrictions in China related to COVID-19.
Businesses have been raising prices on everything from food to clothing. Russia’s invasion of Ukraine in February put even more pressure on consumers by raising energy prices and pumping gasoline prices to record highs.
Consumers were already shifting spending from goods to services as the economy recovered from the pandemic’s impact, but the intensified pressure from inflation has prompted a sharper shift from discretionary items like electronics to necessities.
Stubborn inflation pressures have driven a stark shift in policy from central banks, which are raising rates to try and temper inflation after years of holding rates down to help economic growth.
Now, they are trying to slow economic growth, but investors are worried that they could go too far and actually push the economy into a recession as key economic indicators are already showing a slowdown in things like retail sales.
“The market might be getting spooked by the speed with which consumers are losing confidence, and that it could possibly upend a soft landing” for the economy, said Sam Stovall, chief investment strategist at CFRA.
Investors are awaiting remarks expected for midweek by central bank leaders including Fed Chair Jerome Powell and European Central Bank chief Christine Lagarde. They will also get another update on US economic growth on Wednesday when the Commerce Department releases a report on first-quarter gross domestic product.
Wall Street is also preparing for the latest round of corporate earnings in the next few weeks, which will help paint a clearer picture of how companies are dealing with the squeeze from rising costs and consumers curtailing some spending.
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Athletic footwear and apparel giant Nike fell 7 per cent after giving investors a cautious update on the potential hit to revenue because of lockdowns in China. The company relies on China for roughly 17 per cent of its revenue, according to FactSet.
Wynn Resorts rose 3.2 per cent and Las Vegas Sands added 4 per cent. The companies, which have major gambling businesses in China, got a boost after China eased a quarantine requirement for people arriving from abroad.
Technology and communications companies were among the biggest losers Tuesday. Microsoft fell 3.2 per cent and Apple dropped 3 per cent. Google parent Alphabet slid 3.3 per cent.
Energy stocks made solid gains as US crude oil prices rose 2 per cent. Hess rose 5.6 per cent for the biggest gain in the S&P 500.
The yield on the 10-year Treasury note, which helps set mortgage rates, held steady at 3.19 per cent. Overseas markets rose.
