The pile of worries weighing on the market has pushed the benchmark S&P 500 to the brink of a bearish market, which is when an index falls 20 percent from its most recent all-time high. It is down about 18% from its all-time high set earlier this year.
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Inflation has been heavy on a wide range of industries in the form of higher raw material costs and more expensive labor. Many companies have raised prices for everything from food to clothing to offset the impact of higher costs, but the pressure has been rising. Key retailers, including Target and Walmart, have said higher costs are limiting operations. They also expressed concern that consumers are tempering spending on a wide range of goods.
“When you think about consumer spending, wages are great, but inflation is higher,” said Barry Bannister, Stifel’s chief equity strategist. “Consumers are thin and that affects all businesses.”
Consumers were already compressed by a disconnect from supply and demand when Russia invaded Ukraine and caused another jump in energy prices. U.S. crude oil has risen about 50 percent this year, bringing gasoline prices to record highs, with pump pain reducing spending for many. Supply chain problems have been exacerbated by the recent blockade of China in several major cities, as it deals with the increase in COVID-19 cases.
Wall Street is also concerned about the Federal Reserve’s plan to fight inflation. The central bank is aggressively raising interest rates from historic lows, but investors are concerned that it may go too far in raising rates or moving too fast. This could slow down businesses and potentially lead to a recession. Fed Chairman Jerome Powell has acknowledged that high inflation and weak economic growth abroad could frustrate the central bank’s efforts to cool the economy and curb inflation without falling into a recession.
On Wednesday, investors will have a more detailed view of the Fed’s decision-making process with the release of the minutes of the last policy meeting.
“Until oil cracks and the Fed stops, it’s hard for the market to grow,” Bannister said.
Retailers and businesses that depend on direct consumer spending were among the big declines on Tuesday. Amazon fell 3.2% and Target fell 2.6%.
Bond yields fell. The 10-year Treasury yield fell to 2.76% from 2.86% on Monday afternoon.
Falling bond yields weighed on banks, which depend on higher yields to charge more lucrative interest on loans. Wells Fargo fell 1.2 percent.
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Home builders fell after a government report showed that new home sales fell well short of economists’ forecasts. KB Home fell 2.7%.
Cruise companies and other travel-related companies suffered some of the biggest losses. Carnival fell 10.3% and Norwegian Cruise Line fell 12%.
Household and utilities companies, which are considered less risky than other sectors, made a profit. Campbell Soup rose 3.5% and Duke Energy closed 2% higher.