U.S. stocks sank deeper into negative territory Tuesday afternoon, with the Dow Jones Industrial Average slumping 200 points, in the wake of comments from Federal Reserve officials that sparked worries of a possible interest-rate hike as early as June.
Atlanta Fed President Dennis Lockhart and San Francisco Fed President John Williams said the Fed’s decision on whether to raise rates at the June 14-15 meeting hinges on the data. However, June “certainly could be a meeting at which action could be taken,” Lockhart said. The officials were attending a lunch sponsored by the news site Politico.
The specter of an imminent rate hike battered a market already on wobbly ground after consumer prices jumped at the fastest pace in more than three years, largely thanks to higher gas prices. Inflation, overall, remains tame however. Meanwhile, construction on new houses rebounded in April after a sharp dip in March.
The S&P 500 SPX, -1.09% fell 20 points, or 1%, to 2,046, with nine of the 10 main sectors trading lower. Energy was the only sector holding on to gains.
Higher interest rates are widely viewed as a negative for stocks because they would increase borrowing costs for U.S. companies, possibly suppressing corporate spending and growth. Wall Street has mostly risen during a protracted period of ultralow rates.
“Deflation fears earlier this year have now transitioned to fears of inflationary pressures forcing the Fed’s hand and leading to a quicker pace of future rate increases,” said Mark Heppenstall, chief investment officer of Penn Mutual Asset Management.
Kent Engelke, chief economic strategist at Capitol Securities Management Inc., also blamed the continuing rotation out of “must-own” momentum stocks that have outperformed the broader market last year to value plays which focuses on undervalued shares.
“Monies are now exiting these must-own stocks that are negatively impacting the averages and buying the value-orientated issues,” he said.
Buffett’s Berkshire Hathaway takes $1 billion Apple stake
Apple stock closed higher Monday after SEC filings revealed that Warren Buffett’s Berkshire Hathaway took a $1 billion position in the tech company in the first quarter of 2016. Photo: Bloomberg News
Movers & shakers: Shares of LendingClub Corp. LC, -10.41% plunged more than 8% after the online lender late Monday revealed a Justice Department investigation and unveiled a potential, dramatic shift in its business model.
TJX Cos. TJX, -0.08% slid despite reporting fiscal first-quarter results that beat expectations and raised its full-year outlook.
West Texas Intermediate crude oil CLM6, +1.55% wove in and out of positive territory and was last up 0.9% to $48.13 a barrel.
Crude had jumped more than 3% on Monday after Goldman Sachs said the oil market is now in a supply shortfall.
–Sara Sjolin contributed to this article.