The sell-on-rallies template played out to perfection on Wall Street on Tuesday as benchmark indices ended lower after a two-day relief rally.
The Dow Jones fell 260 points, recovering marginally from the sessions lows as at one point, the index was down nearly 400 points. The S&P 500 shed 1%, while the Nasdaq ended with cuts of 1.7%.
Tesla, one of the most sold names during the recent correction fell over 5% after a brokerage, RBC Capital Markets cut its price target, citing rising competition in the EV space. It has declined 36% over the last month.
Other megacap tech names fell to the lowest since September last year. Nvidia Corp. sank 3.4% despite laying out plans to expand its AI reign with robots and desktop systems. Meta Platforms Inc. became the last of the Magnificent Seven stocks to lose its year-to-date gain.
Treasuries edged up after a solid $13 billion sale of 20-year bonds. The yield on 10-year Treasuries dropped one basis point to 4.29%. The dollar fluctuated. Gold climbed to a fresh record.
Investors have slashed holdings of US equities by the most on record while cash levels jumped, according to Bank of America Corp.’s latest survey. Just about a month ago, stocks were making new highs on expectations that Trump administration policies would stoke growth. Those assumptions may now be under threat if the economy slows and big bets on artificial intelligence don’t pay off.
“Because investors’ favorite stocks have suffered so much, it’s likely impacting investor sentiment disproportionately,” said Bret Kenwell at eToro. “Historically, similar levels in sentiment have coincided with at least a short-term bottom in US stocks, although it’s not clear that we’ve seen a capitulatory type move that generally marks the bottom.”
Following a rapid stock selloff, talks about a “Fed put” to rescue investors have risen. But anyone expecting some reassurance at the March meeting will be disappointed, according to Anna Wong at Bloomberg Economics.
“Sticky inflation and higher inflation expectations raise the bar for Fed cuts,” said Lauren Goodwin at New York Life Investments. “The Fed is likely to need to see a stronger deterioration in financial conditions and the economic growth outlook before pre-emptively cutting with inflation figures so strong.”
Using 2018’s insurance cuts as a guideline, Goodwin said an equity market valuation decline of at least 20% would be required to push the Fed to act.
Options traders are pricing in a 1.2% move in the S&P 500 in either direction on Wednesday — up from an average of 0.8% for Fed Days over the past year, according to data from Stuart Kaiser, Citigroup’s head of US equity trading strategy.
A survey conducted by 22V Research shows investors are watching the Fed more closely than the prior three meetings.
But there’s no real consensus on the market reaction — with 34% of respondents saying “risk-off”, 27% “risk-on” and 39% “mixed/negligible.
(With Inputs From Agencies.)