By Damian J. Troise and Alex Veiga
Stocks on Wall Street extended their recent run of losses Tuesday as investors reviewed disappointing earnings reports and looked ahead to the release of an inflation snapshot closely watched by the Federal Reserve.
The S&P 500 fell 0.4%, marking its fourth consecutive drop. The Dow Jones Industrial Average fell 0.2% and the Nasdaq slid 1.2%.
Smaller company stocks also gave up ground, sending the Russell 2000 index 1.5% lower.
Technology companies and retailers were the biggest drags on the market, outweighing gains in energy, financials and elsewhere. Bond yields rose broadly.
The selling likely reflects profit-taking by investors ahead of Wednesday's consumer price index report, said Sameer Samana, senior global market strategist at Wells Fargo Investment Institute.
The headline figure is expected to show a smaller annual increase in July than in June, according to FactSet. But core inflation, which strips out volatile energy and food costs, leaving rent and other big-ticket purchases, is expected to come in higher than in June.
“With core (inflation) being the more important of the two, the fact that it hasn't peaked yet and may not peak for a few months to come, given how much momentum we’re seeing in rent increases, in wage increases, that's going to be the real problem for the Fed,” Samana said. "How to cool that down, especially when the economy is adding as many jobs as it is?”
The S&P 500 fell 17.59 points to 4,122.47. The Dow slipped 58.13 points to close at 32,774.41. The Nasdaq dropped 150.53 points to 12,493.93. The Russell 2000 ended down 28.31 points at 1,912.89.
After a surprisingly strong 9.1% gain in July, the benchmark S&P 500 index has been mostly selling off this month as Wall Street tries to gauge how aggressively the Federal Reserve will continue to raise interest rates in order to combat inflation and what that will mean for the economy and corporate profits.
The U.S. Labor Department will release its July report for consumer prices Wednesday, followed by its producer prices report on Thursday. Investors and economists will look for any signs that the Federal Reserve’s aggressive rate hikes the past few months have helped to bring inflation under control.
“Regardless of that number, there’s still going to be an environment where they’re raising rates,” said Michael Landsberg, chief investment officer of Landsberg Bennett Private Wealth Management.
The Fed has raised rates four times this year in an effort to hit the brakes on the economy and cool the hottest inflation in four decades. Wall Street is worried that the central bank could slam the brakes too hard and tip the economy into a recession. Last week’s strong July jobs report has most economists predicting the Fed will again raise short-term interest rates by as much as another three-quarters of a point at its September meeting.
Most economic data already points to a slowdown. The U.S. economy has now contracted for two straight quarters, which constitutes an informal indicator of a recession. But recession fears have been tempered by a hot jobs market with unemployment at historic lows. While that’s good for the economy, it’s a sign that inflation persists.
Investors have also been closely watching the latest round of corporate earnings and economic data for clues on how inflation is hurting consumers and businesses.
Chipmaker Micron Technology fell 3.7% after warning investors that revenue could fall short of forecasts because of weakening demand. That warning hit other chipmakers hard, with Nvidia shedding 4%.
Norwegian Cruise Line plunged 10.6% for the biggest drop in the S&P 500 after reporting disappointing financial results and giving investors a weak revenue forecast. The weak results weighed down travel-related stocks. Expedia fell 1.6% and American Airlines fell 2.7%.
As the earnings season winds down, Disney, Wendy’s and Wynn Resorts will be reporting quarterly results this week.
Also on Tuesday, audience rating company Nielsen surged 21.2% after it announced progress on a deal to be acquired by private equity firms.
Bond yields rose. The yield on the 10-year Treasury rose to 2.79% from 2.75% late Monday.
Updated on August 9, 2022, at 5:05 p.m. ET.