Stocks fell sharply on Thursday ahead of a key inflation report as investors worried about the state of the U.S. economy.
The Dow Jones Industrial Average fell 638.11 points, or 1.94%, to close at 32,272.79. The S&P 500 dropped 2.38% to settle at 4,017.82, and the Nasdaq Composite shed 2.75% to come in at 11,754.23.
Major tech stocks struggled, with Meta Platforms sliding 6.4% and Amazon dropping more than 4%. Apple sank 3.6%
Casino stocks were some of the worst performers in the S&P 500, with Las Vegas Sands falling 5.6% and Caesars Entertainment sliding 3.8%. Chinese tech stocks reversed recent gains and dragged on the Nasdaq, with Pinduoduo sinking 9.6%.
Boeing was the worst performer in the Dow, falling more than 4%.
The slide for stocks comes ahead of the May consumer price index report on Friday. Investors are looking to see if inflation has peaked or if the Federal Reserve will need to be even more aggressive to tamp down price increases.
"The fact that people have literally been talking about this report for the last several days illustrates how much of an issue inflation has become for the market over the last six months since Fed Chair Powell first started to take a more hawkish approach to inflation," Bespoke Investment Group said in a note to clients.
The market was modestly lower for most of the session before selling gained steam in the final hour. The Dow was trading just below 32,700 shortly before 3 p.m. in New York, but the index dropped more than 400 points from there. The Cboe Volatility Index, often called Wall Street's "fear gauge," rose more than 2 points to close above 26 for the first time this month.
Investors have been assessing the health of the U.S. economy in recent weeks, as the Fed has started hiking rates in an attempt to cool inflation without tipping the economy into recession.
Higher energy prices and continued supply chain disruptions have kept inflation persistently high in recent months, while some economic data has shown slowing growth in recent weeks.
"There's a lot of headfakes going on. And unfortunately we're not going to get a lot of clean looks at the economy, whether the U.S. economy or certainly the global economy, for quite some time because there's just so many things that are hard to decipher," said Michael Skordeles, senior U.S. macro strategist at Truist.
Oil prices dipped slightly on Thursday, but U.S. West Texas Intermediate crude still held above $120 per barrel. Initial jobless claims rose to 229,000 last week, worse than the 210,000 expected.
The S&P 500 is down more than 16% from its record high, but has mostly traded sideways in recent weeks after bouncing off its recent low in May. The index has shed more than 2% this week.
Andrew Slimmon, senior portfolio manager at Morgan Stanley Investment Management, said he thinks stocks will finish the year higher from here but could be in for a bumpy ride over the summer, with that May low a key area to watch.
"Maybe we retest that, but I don't see a substantial decline below that because it is my belief that, despite higher oil prices and higher food prices … the economy will be able to withstand the shock that we're facing now," Slimmon said.
Stocks appeared to move opposite bond yields on Thursday, which were volatile after an update from the European Central Bank. The ECB confirmed its plan to hike interest rates in July and possibly again in September. The ECB also raised its inflation projection for 2022 to 6.8%, up from 5.1% previously, and lowered its growth outlook.