A slump in technology stocks dragged Wall Street to its worst day in three weeks on Tuesday.
The S&P 500 fell 1% for its second straight loss after closing last week at an all-time high. The Dow Jones Industrial Average fell 1%, and the Nasdaq Composite Index led the market down 1.7%.
Apple's stock decline of 2.8% was one of the heaviest in the market. It has been struggling due to concerns about slowing iPhone sales in China, where intense competition and a faltering overall economy pose a challenge.
Apple is one of many big tech stocks that have recently buckled under the weight of higher expectations after their prices soared. Since the beginning of last year, a select group known as the “Great Seven” have been responsible for the vast majority of the S&P 500's rise to all-time highs.
The declines in many of them were among the heavy weights on the S&P 500 on Tuesday. Microsoft shares fell 3%, Amazon shares fell 1.9%, and Tesla shares fell 3.9%.
Piling into technology stocks has become one of the most popular moves on Wall Street among mutual funds and hedge funds, according to strategists at Barclays Capital. This can increase the risk of sharp declines later when momentum breaks, especially as criticism grows that stocks have become too expensive.
High-growth stocks have generally risen for several reasons, including the mania around artificial intelligence technology, but if they “fail to deliver on aggressive expectations, growth investors will likely end up disappointed,” according to the asset allocation team at GMO, an investment firm he co-founded. Jeremy Grantham.
MicroStrategy stock fell 21.2% after it said it would raise $600 million in debt, which it will use to buy more bitcoin and for “general corporate purposes.”
Bitcoin briefly rose above $69,000 on Tuesday, surpassing the record set in 2021, before falling below $63,000. Its rise has been driven in part by new exchange-traded funds that offer investors easier access to cryptocurrency. This number has almost tripled over the past 12 months, but it is known for large swings in both directions that can occur painfully and suddenly.
The target helped limit the market's losses after it rose 12%. It announced a larger jump in profits for the end of 2023 than analysts expected, as it maintained some expenses.
New York Community Bancorp stock also rose by 17.9%, reducing its losses for the week so far to 9.3%. The bank is under pressure due to losses associated with its commercial real estate investments. It is also under intense regulatory scrutiny because of its purchase of a large chunk of Signature Bank, one of the banks that fell into the industry's mini-crisis last year.
Still, many analysts say the problems facing the New York central bank may be unique to it, more than just a sign of trouble to come for banks more broadly, especially after the US government's efforts last year to prop up the industry. But if interest rates remain high, pressure on the entire industry could increase.
In total, the S&P 500 index fell 52.30 points to 5,078.65. The Dow Jones fell 404.64 points to 38,585.19, and the Nasdaq fell 267.92 points to 15,939.59.
Hopes for upcoming interest rate cuts were boosted after a report showed that growth in construction, health care and other service industries in the United States slowed more last month than economists expected.
Perhaps more importantly for the market, the report also said prices paid by utility companies rose at a slower pace in February than in January. Meanwhile, a separate report said that US factory orders fell more than expected in January.
Wall Street's hope was that the economy would continue to grow, but not at such a strong pace that it would maintain upward pressure on inflation. This is because traders want the Fed to cut interest rates this year, something it has been hinted it will only do if inflation falls decisively towards its 2% target.
Following Tuesday's reports, bets increased among traders that the Federal Reserve will begin cutting interest rates in June. The Federal Reserve's key interest rate was raised to its highest level since 2001 in hopes of lowering inflation. Any cuts would ease pressure on the economy and financial system.
Federal Reserve Chairman Jerome Powell will testify before Congress later this week, which could further influence expectations of when interest rate cuts could begin.
In the bond market, the yield on the 10-year Treasury note fell to 4.13% from 4.22% late Monday.
In overseas stock markets, Hong Kong's Hang Seng Index fell 2.6%. The Chinese Premier said that the country's economic growth target this year is about 5%, which is in line with expectations. But the government's intention to keep its deficit at 3% of the total size of the Chinese economy may have disappointed investors who had hoped for more aggressive action.
Shares in Shanghai rose 0.3%.
AP writers Ellen Kurtenbach and Matt Ott contributed to this report.
