Stocks slide on Wall Street as inflation worries persist

Stocks closed broadly lower on Wall Street on Tuesday after a discouraging snapshot of U.S. consumer confidence stoked investors’ worries about the risk that sharply higher interest rates and pervasive inflation could trigger a recession.

The Standard & Poor’s 500 ended 2% lower, reversing a 1.2% gain from earlier in the day. The Dow Jones industrial average fell 1.6% and the Nasdaq composite ended 3% lower.

About 85% of the stocks in the benchmark S&P 500 closed in the red. Technology, communications and healthcare stocks accounted for a big share of the decline. Retailers and other companies that rely on direct consumer spending also helped pull the index lower. Energy stocks, the only sector in the index to notch gains this year, rose as crude oil prices headed higher.

The indexes got off to a solid start, but the gains faded by midday after the Conference Board reported that its consumer confidence index fell in June to its lowest level in more than a year. The decline was driven largely by concerns over inflation, including rising prices for gas and food. The results were also much weaker than economists expected.

“Confidence is going to continue to shrink as long as inflation remains high,� said Chris Zaccarelli, chief investment officer at Independent Advisor Alliance. “It all comes back to inflation, it’s ultimately driving reaction from the Fed and impacting the market and consumer confidence.�

The S&P 500 fell 78.56 points to 3,821.55, while the Dow dropped 491.27 points to 30,946.99. The tech-heavy Nasdaq slid 343.01 points to 11,181.54.

Smaller-company stocks also fell. The Russell 2000 gave up 32.90 points, or 1.9%, to end at 1,738.84. The indexes are all on pace for losses of 6% or more in June.

Investors face a pervasive list of concerns centering on high inflation squeezing businesses and consumers. Supply chain problems that have been at the root of rising inflation were made worse over the last several months by increased restrictions in China related to COVID-19.

Businesses have been raising prices on food, clothing and most other things. Russia’s invasion of Ukraine in February put even more pressure on consumers by raising energy prices and pumping gasoline prices to record highs.

Consumers were already shifting spending from goods to services as the economy recovered from the pandemic’s effects, but the intensified pressure from inflation has prompted a sharper shift from discretionary items such as electronics to necessities.

Stubborn inflation pressures have driven a sharp shift in policy from central banks, which are raising rates to try to temper inflation after years of holding rates down to help economic growth.

Now, they are trying to slow economic growth, but investors are worried that they could go too far and actually push the economy into a recession as key economic indicators are already showing a slowdown in things like retail sales.

“The market might be getting spooked by the speed with which consumers are losing confidence, and that it could possibly upend a soft landing� for the economy, said Sam Stovall, chief investment strategist at CFRA.

Investors are awaiting remarks expected midweek by central bank leaders including Fed Chair Jerome H. Powell and European Central Bank chief Christine Lagarde. They will also get another update on U.S. economic growth Wednesday when the Commerce Department releases a report on first-quarter gross domestic product.

Wall Street is also preparing for the latest round of corporate earnings reports in the next few weeks, which will help paint a clearer picture of how companies are dealing with the squeeze from rising costs and consumers curtailing some spending.

Athletic footwear and apparel giant Nike fell 7% after giving investors a cautious update on the potential hit to revenue because of lockdowns in China. The company relies on China for roughly 17% of its revenue, according to FactSet.

Wynn Resorts rose 3.2% and Las Vegas Sands added 4%. The companies, which have major gambling businesses in China, got a boost after China eased a quarantine requirement for people arriving from abroad.

Technology and communications companies were among the biggest losers Tuesday. Microsoft fell 3.2% and Apple dropped 3%. Google parent Alphabet slid 3.3%.

Energy stocks made solid gains as U.S. crude oil prices rose 2%. Hess rose 5.6% for the biggest gain in the S&P 500.

The yield on the 10-year Treasury note, which helps set mortgage rates, held steady at 3.19%. Overseas markets rose.