The Dow Jones industrial average lost 809.28 points, or 2.4 percent, to close at 33,240.18, while the broader S&P 500 index slumped 120.92 points, or 2.8 percent, to land at 4,175.20. But it was the Nasdaq, which is heavy on tech stocks, that took the biggest dive, plunging nearly 4 percent, or 514.11 points, to end the day at 12,490.74.
After Monday’s reprieve, the session marked a swift return to the dour mood that has largely prevailed over Wall Street this month. The blue-chip index, which skidded nearly 1,000 points on Friday, is down 4.9 percent in April. The S&P 500 has erased 8.8 percent and the Nasdaq 13 percent.
Year to date, the declines are even more stark, with the Dow off 8.5 percent, the S&P 500 12.4 percent and the Nasdaq 20.2 percent. Analysts attribute much of those losses to the Federal Reserve’s decisive march toward higher interest rates to control inflation, which has forced investors to reevaluate growth-oriented stocks, particularly those of tech companies.
The central bank is expected to announce the second of seven planned rate hikes next week at the culmination of its two-day meeting. Investors had been expecting a series of 0.25 percent increases, but Fed officials have made clear that 0.5 percent is on the table.
Investors also zeroed in corporate earnings. Shares of Microsoft and Google parent Alphabet slumped 3.7 and 3 percent, respectively, ahead of their financial results, which were released after the market close. Microsoft edged lower in after-hours trading despite releasing better-than-expected quarterly results. But Alphabet skidded more than 6 percent after hours after missing profit and revenue targets.
Amazon, Capital One, Facebook parent Meta Platforms and Twitter also release quarterly reports this week.
Most of those stocks were winners during the first year of the coronavirus pandemic, but they’ve become new sources of uncertainty, analysts say, as any one of them could report news affecting their long-term growth prospects, such as the unexpected subscriber loss that erased more than a third of Netflix’s market value last week.
“The U.S. tech quintet always causes a stir during earnings season and it’s evident that investors on Wall Street are bracing themselves for disappointment,” said AJ Bell financial analyst Danni Hewson.
Word of Tesla CEO Elon Musk’s $44 billion acquisition of Twitter had given the markets a sentiment-driven boost Monday, said George Ball of the Houston-based investment firm Sanders Morris Harris. Shares closed up 5.6 percent after the deal was confirmed.
But that was merely “a short-term distraction from the broader worries facing markets, like inflation, geopolitical concerns and a more hawkish Federal Reserve,” Ball said in an email.
Moody’s later placed Twitter on review for downgrade over concerns about the massive loads of debt being used to finance the deal. Shares slid 3.9 percent Tuesday.
Meanwhile Tesla stock plunged 12 percent Tuesday, as investors sorted out the implications of Musk taking the helm of another company. In addition to the automaker, he owns rocket company SpaceX and some smaller properties.
Brad McMillan, chief investment officer at Commonwealth Financial Network, said Tuesday’s declines exemplify how the market is pricing in rate hikes before they actually happen. If the Fed succeeds in bringing inflation under control, blue skies could be on the horizon before long, he said.
“This is painful in the short term, but necessary to lay the foundation for future growth,” McMillan wrote. “As always, we just need to ride out the short-term pain to benefit from that future growth.”