The S&P 500 was 1.5% lower in midday trading and flirting with its worst drop in two months. The Dow Jones Industrial Average was down 533 points, or 1.6%, at 33,293, as of 12:30 p.m. Eastern time, while the Nasdaq composite was 1.9% lower.
The other main lever is also looking precarious as interest rates continue to rise. When safe bonds are paying higher amounts of interest, they make stocks and other investment look comparatively more expensive. Why take a lot of risk on stocks if safer things are paying out more? Higher rates also raise the risk of a recession because they slow the economy by design in hopes of snuffing out inflation.
“That is what’s weighing on the market,” said Keith Lerner, chief market strategist at Truist Advisory Services. The latest evidence came from a preliminary report Tuesday that suggested business activity is gaining momentum. The services industry likely returned to growth last month and was at an eight-month high, according to S&P Global. Manufacturing, meanwhile, may still be contracting, but the reading hit a four-month high.
The worry is that the Fed could ratchet up its forecasts for rates further next month when it releases its latest projections for the economy. Besides showing more strength in the job market and retail sales than expected, recent reports have also suggested inflation is not cooling as quickly and as smoothly as hoped.
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