Stocks fell for a third day on Tuesday, jeopardizing a summer comeback rally, as the Federal Reserve and other global central bankers continued to signal they will raise interest rates to squash inflation despite the negative consequences for economic growth and, potentially, corporate profits.
The S&P 500 fell 1.1% to 3,986.16, dropping below the 4,000 level for the first time since July. The Nasdaq Composite lost 1.1%, to close at 11,883.14. Meanwhile, the Dow Jones Industrial Average slid 308.12 points, or nearly 1%, to 31,790.87.
The market added to losses that began Friday, when the S&P 500 shed more than 3% in a big rout following inflation-fighting comments from Fed Chief Jerome Powell and continued to fall this week. The benchmark's comeback from its mid-June low has been cut by half to 8.7%. The Dow and Nasdaq have both lost more than half their gains since the middle of June and now sit about 6% and 11%, respectively, above their summer lows.
The latest comments came from New York Fed President John Williams on Tuesday. "I do think with demand far exceeding supply, we do need to get real interest rates … above zero. We need to have somewhat restrictive policy to slow demand, and we're not there yet," Williams told the Wall Street Journal.
"We're still quite a ways from that," he added.
Williams' comments follow similar sentiments voiced by European Central Bank policymaker and Estonian central bank Governor Madis Muller, who said on Tuesday the central bank should discuss a 75-basis-point rate hike in September given exceptionally high inflation.
Short-term rates continued their march higher as investors bet on more rate hikes. The 2-year Treasury yield topped its highest in nearly 15 years.
"The markets are fragile and the hawkish reception [by the Fed Friday] shows they're trying to be crystal clear that the Fed pivot is not in the cards and they're going to continue to have inflation as their number one priority," said Stephanie Lang, chief investment officer of Homrich Berg. "That narrative is going to continue to put pressure on the market. We're just going to have a lot of volatility… into year-end."
She added that all eyes are on the Friday jobs report, but a strong number would just mean more of the same rhetoric from the Fed, in terms of its commitment to lowering inflation.
"We're at a tricky juncture, but I don't think one particular data point is going to give relief to the market," Lang said. "You're going to need to see several months of the actual inflation data continue to move down for the Fed to feel any bit of comfort."
Energy prices eased on Tuesday, with West Texas Intermediate futures, the U.S. oil benchmark, falling more than 5%. Natural gas futures also dipped.
S&P 500 closes 1% lower, cutting its summer rally by half
The S&P 500 fell 1.1% to 3,986.16, falling below the 4,000 level for the first time since July. The benchmark's comeback from its mid-June low has been cut to 8.7%.
Meanwhile, the Nasdaq Composite lost 1.1%, to close at 11,883.14, and the Dow Jones Industrial Average slid 308.25 points, or 1%, to 31,790.87.
— Tanaya Macheel
Snap to lay of one-fifth of its staff, report says
Social media company Snap is planning to lay off 20% of its staff, according to a report from The Verge.
In July, Snap beat expectations for its second quarter, but it still reported a net loss and media companies have become increasingly worried about a slowdown in the advertising market.
Shares of the company were down 2.7% for the session.
— Jesse Pound
Financials are the best performing sector Tuesday
Every sector in the S&P 500 was down on Tuesday and stocks continued their three-day sell-off. Financials trailed the other 10 sectors, down 0.2% on the day in the final hour of trading. Goldman Sachs, JPMorgan and American Express were in the green, albeit slightly.
Energy stocks continued to lead declines. The sector was last down 3.4%.
— Tanaya Macheel
These are the best stocks in 2022's weakest sectors
The market downturn over the past week has been broad based, with decliners easily outnumbering the gainers in each of the past three trading sessions.
However, there have been some bright spots this year in even the most beaten down sectors.
CNBC Pro took a look at some of the best-performing stocks in the weakest sector this year, and found that many are well-liked by Wall Street analysts and beating the S&P 500. One notable name is T-Mobile, which is up more than 20% year to date.
— Jesse Pound
Commodities decline, gasoline futures close at lowest in months
Energy prices declined sharply on Tuesday, with gasoline futures closing at their lowest level since before Russia invaded Ukraine.
RBOB futures fell 6.37% to settle at $2.69 per gallon, a price last seen on Feb. 18.
— Pippa Stevens
Chip stocks struggling in market sell-off
The semiconductor sector is underperforming on Tuesday, helping to drive down the Nasdaq Composite.
The VanEck Semiconductor ETF has shed about 2%, bringing its year to date losses back to more than 30%.
Chip giant Nvidia is one of the worst performers in the Nasdaq 100, sliding 3.8%. Advanced Micro Devices has dropped 3.3%.
Earlier on Tuesday, Citi said semis are entering their worst downturn in a decade.
— Jesse Pound
UBS puts recession probability over the next year at 60%
The possibility that the U.S. economy is headed for a recession over the next year has risen sharply, according to UBS.
In its latest economic forecasting, the bank's economists and strategists say data is pointing toward a 60% chance of a recession ahead, up from 40% from the latest reading in June.
UBS measures three components: hard macro data, the yield curve across various Treasury maturities, and credit data such as nonperforming loans and feedback from the Federal Reserve's Senior Loan Officers' Survey.
Using data alone, "the probability of being in a contractionary phase is historically very high — 94% in July vs 35% in April — but in the current case, the US team's modal forecast is that the contraction does not morph into a full-blown recession," UBS said in a note.
The news also isn't good when looking at Treasury yields.
A key part of the curve, comparing 10-year yields to 2-year, has been inverted since early July. The rest of the curve looking at 1- to 10-year maturities is "downward sloping, as it usually is prior to recessions," UBS said. The chance of a recession from the bond space is now at 71%, up from 57% in July.
One bright spot is credit: the sector is showing just a 15% chance of recession, as metrics in that space still appear mostly positive.
The U.S. has seen two consecutive quarters of negative growth, a traditional recession sign, though the last word usually goes to the business cycle dating committee at the National Bureau of Economic Research. Most economists think the NBER will not rule the U.S. in recession for the first half of the year.
S&P 500 breaks below 50-day moving average, dips under 4,000
The recent market downturn is starting to do some technical damage.
Tuesday's losses pushed the S&P 500 back below its 50-day moving average, a key level watched by traders and strategists. It marked the first time since July 26 that the broad market index traded below that level.
Tuesday also marked the first time since July 28 that the S&P 500 broke below 4,000.
— Fred Imbert
Focus on defensive stocks as volatility continues through year-end, says UBS’ Lipsey
As stocks sell off for a third straight day, investors are still wrapping their heads around the comments made by Fed Chair Jerome Powell in Jackson Hole, Wyoming on Friday.
Rod von Lipsey, managing director at UBS Private Wealth Management, said investors "are coming to terms with the idea that the Fed is serious about curbing inflation, even as recent data suggests inflation is starting to decline."
"We believe the market's summer rally was ephemeral," he added, "and continue to recommend that investors remain selective and focus on defensive stock sectors like health care and dividend-paying stocks."
— Tanaya Macheel
Energy, utilities still on pace for monthly gains
Energy and utilities are the only S&P 500 sectors trading in positive territory as August nears an end.
While energy was the worst-performing sector on Tuesday and fell about 4% as of midday trading, it's on track to end August with a 2.7% gain. Energy is also one of just two sectors currently trading in positive territory year to date – up more than 45%.
Meanwhile, utilities is on pace to end August 1.3% higher and is up about 4.6% since the beginning of January.
On the flip side, healthcare and information technology are currently leading August's declines across the S&P 500's sectors, down more than 5.1% and 5.7%, respectively, since the beginning of the month.
— Samantha Subin
Bank of America's Hyzy says investors should focus on defensive areas in months ahead
Chris Hyzy, Bank of America Private Bank CIO, said on "Halftime Report" that investors should shift into defensive stocks now that Federal Reserve officials have pushed back on the market's expectation for rate cuts in 2023.
"If it's higher for longer, you really should be looking at high free cash flow areas, pricing power areas, demand that is going to hold up relative to supply," Hyzy said.
Market expectations have shifted toward higher rates over the past week as central bankers, including Jerome Powell last Friday and John Williams on Tuesday, have reiterated the Fed's commitment to fighting inflation. The CME FedWatch tool now shows that traders expect the Fed to hike rates to range of 3.75% to 4.00% by December, and to keep it at the level or hike even further in the first half of next year.
Hyzy did say he was bullish long-term but said the market would need a reset over the next six to nine months.
Restaurant shares tumble as California bill to set wages for the fast-food industry advances
Shares of restaurants slid on Tuesday after a California bill to set wages and workplace standards for the fast-food industry moved forward.
The state's legislature passed a new bill on Monday, known as the FAST Act, that would create a panel to establish wages and safety conditions for fast food workers. Assembly Bill 257 now heads to the desk of Gov. Gavin Newsom.
Restaurant chains with a notable presence in California saw their shares dip on Tuesday. Shares of Jack in the Box fell 9.5%, while First Watch Restaurant Group shed about 2.7%. Chipotle Mexican Grill fell 1.8%.
Warren Buffett turns 92; his conglomerate continues to crush the market
From 1965 through the end of last year, the annualized return on Berkshire stock was 20.1%, compared with 10.5% for the S&P 500, according to Berkshire's 2021 annual report. The overall gain from Berkshire shares from 1964 to 2021 has been an astounding 3,641,613%.
Berkshire's stock is outperforming the overall market again in 2022, down about 4%, as the conglomerate's operating profits kept expanding. Buffett has spent the past year strengthening Berkshire Hathaway's investments in energy, focusing on Chevron and Occidental Petroleum.
— Yun Li
Home prices rise at slower pace in June, S&P Case-Shiller says
Home prices rose by 18% in June on a year-over-year basis, a slightly slower pace than the 19.9% annual gain seen in May, according to the S&P CoreLogic Case-Shiller Indices.
"It's important to bear in mind that deceleration and decline are two entirely different things, and that prices are still rising at a robust clip," wrote Craig Lazzara, managing director at S&P Dow Jones Indices, in a release. "June's growth rates for all three composites are at or above the 95th percentile of historical experience. For the first six months of 2022, in fact, the National Composite is up 10.6%."
— Fred Imbert, Diana Olick
Lucid slides after EV company says it will likely raise more capital
Shares of electric vehicle company Lucid Group were under pressure on Tuesday after the company indicated that it planned to raise more capital.
Lucid on Monday filed a shelf registration statement with the Securities and Exchange Commission that said the company planned to raise up to $8 billion over the next three years. The capital raises could include common stock or debt, among other options.
The company said it is not selling any securities at this time but that the filing will "provide greater flexibility to raise capital in the future."
Shares of Lucid were last down 6.7%.
— Jesse Pound
Oil companies lead declines in the S&P 500, Dow
Oil companies dragged the S&P 500 on Tuesday, fueled by declines in energy prices.
Shares of Halliburton, Diamondback Energy and Marathon Oil were the top decliners in the broad market index. Halliburton slid more than 5%, while Diamondback and Marathon shed more than 4% each. Chevron shares fell more than 2%, making it the top decliner in the Dow Jones Industrial Average.
Oil prices also slumped. Brent crude futures fell about 5%, dipping below $100 a barrel. West Texas Intermediate crude futures for October delivery tumbled more than 4% to $92.54 a barrel.
Consumer confidence index tops expectations for August
The Conference Board's consumer confidence index came in at 103.2 for August, up from a July print of 95.3 and above a StreetAccount estimate of 97.4. It also marked the index's first gain after falling for three straight months.
"The Present Situation Index recorded a gain for the first time since March. The Expectations Index likewise improved from July's 9-year low, but remains below a reading of 80, suggesting recession risks continue. Concerns about inflation continued their retreat but remained elevated," said Lynn Franco, Senior Director of Economic Indicators at The Conference Board.
— Fred Imbert
The 'Fed put' is dead for now, says Horizon Investments' Ladner
Historically, the market could count on the Federal Reserve to step in with easy policy to help limit big losses in equities, which has been known since the days of former Fed Chair Alan Greenspan as "the Fed put." But that lifeline could be dead, for now, according to Scott Ladner, chief investment officer at Horizon Investments.
"Bad economic news is once again bad market news," he said. "In an environment where you believe the Fed will pivot to a more dovish policy if the economy weakens, bad economic news can be interpreted bullishly because it speeds the time of such a dovish pivot."
"In an environment where the Fed has been clear that they will sacrifice the economy (to what extent, still unknown) to squash inflation, that stance no longer makes sense and bad economic news just increases the chance of recession which decreases earnings potential without the possibility of a Fed backstop," he added. " Said another way, the 'Fed put' is currently dead."
— Tanaya Macheel
Stocks open higher following two straight down days
Stocks opened higher on Tuesday as the major averages attempted to avoid a third straight day of losses. The Dow Jones Industrial Average traded 88 points higher, or 0.3%. The S&P 500 advanced 0.3%, and the Nasdaq Composite added 0.6%.
The stock indexes are still on pace for a down month.
— Tanaya Macheel