US: Wall Street, tech shares stumble on fears of aggressive Fed

[NEW YORK] Wall Street's main indexes fell on Tuesday (Apr 5), dragged by weakness in tech and other growth stocks, after comments from Federal Reserve Governor Lael Brainard spooked investors about potential aggressive actions by the central bank to control inflation.

The tech-heavy Nasdaq posted its biggest daily percentage drop in about a month, with declines in heavyweight stocks such as Apple and Amazon.com.

At a conference on Tuesday, Brainard said she expects methodical interest rate increases and rapid reductions to the Fed's balance sheet to bring US monetary policy to a "more neutral position" later this year, with further tightening to follow as needed.

Brainard's comments "drove home the point that the Fed is poised to get more aggressive", said Kristina Hooper, chief global market strategist at Invesco.

"That is certainly having a negative effect on equities because of concerns that this increases the probability of a recession," Hooper said. "It's going to be increasingly difficult for the Fed to engineer a soft landing the more aggressive it gets."

The Dow Jones Industrial Average fell 280.7 points or 0.8 per cent to 34,641.18, the S&P 500 lost 57.52 points or 1.26 per cent to 4,525.12 and the Nasdaq Composite dropped 328.39 points or 2.26 per cent to 14,204.17.

Among S&P 500 sectors, technology slumped 2.2 per cent while consumer discretionary fell 2.4 per cent. The utilities sector rose 0.7 per cent.

US Treasury yields rose to multi-year highs with yields taking off after Brainard's comments.

The prospect of a more hawkish Fed led to a rocky start to the year for equities and in particular for tech and growth shares whose valuations stand to be more pressured by higher bond yields. Stocks have rebounded in recent weeks, with the S&P 500 now down about 5 per cent so far this year.

Focus on the Fed will continue on Wednesday, when the central bank releases minutes of its March meeting.

"For the rest of this week, the market will be driven by interest rates and it will be driven by the Fed's comments about interest rates," said Peter Tuz, president of Chase Investment Counsel in Charlottesville, Virginia.

Investors also remain focused on the Ukraine crisis, which has led to rising commodity prices that stand to worsen an already-worrisome inflationary picture.

In economic news, data showed US services industry activity picked up in March, boosted by the rolling back of pandemic restrictions, but businesses continued to face higher costs as supply strains persisted.

In company news, shares of Twitter gained 2 per cent, adding to their prior-day surge, as the social media company said it will offer Tesla CEO and entrepreneur Elon Musk a seat on its board of directors.

Carnival shares rose 2.4 per cent after the cruise operator reported its highest booking week in its history.

Shares of Spirit Airlines soared 22.5 per cent after reports that JetBlue Airways has made an offer to buy Spirit.

Declining issues outnumbered advancing ones on the NYSE by a 4.33-to-1 ratio; on Nasdaq, a 2.96-to-1 ratio favoured decliners.

The S&P 500 posted 42 new 52-week highs and 8 new lows; the Nasdaq Composite recorded 55 new highs and 100 new lows.

About 11.4 billion shares changed hands in US exchanges, compared with the roughly 13 billion daily average over the last 20 sessions. REUTERS