The S&P 500 and the Nasdaq closed lower on Tuesday, easing from record highs as hotter-than-expected inflation data and an increasingly tenuous U.S.-Iran ceasefire prompted investors to take money off the table near the end of a robust first-quarter earnings season.
Weakness in tech shares dragged the Nasdaq down the most, while health-care stocks, buoyed by a jump in Humana, helped keep the Dow in positive territory.
Canada’s main stock index clawed back its earlier declines to end higher, as a jump in oil prices lifted energy shares.
As reporting season wraps up, investors are increasingly focused on valuations, macroeconomics and geopolitical developments.
While the PHLX Semiconductor index dropped 3%, the index has soared 65.4% this year, benefiting from the fervor about artificial intelligence.
“Our call has been for the market to flatten out simply because greed occurs during earnings season and fear after,” said Jay Hatfield, CEO and portfolio manager at InfraCap in New York.
Economic data showed U.S. consumer prices rising at a faster pace than analysts anticipated as the closure of the Strait of Hormuz due to the war with Iran continued to disrupt crude supply.
“Inflation is not getting any better unless oil prices go down,” Hatfield added. “That’s the history that you can set your watch by.”
The Iran war, in its 11th week, showed no signs of a near-term resolution. U.S. President Donald Trump declared the truce was “on life support” after Tehran rejected a U.S. proposal to end the conflict, sticking with a list of demands Trump called “garbage.”
The notion of a protracted conflict raises the probability that spiking energy prices could metastasize into broader, more entrenched inflation. That has all but squelched hopes for an interest rate cut from the Federal Reserve this year under the presumed chairmanship of Kevin Warsh, whom the U.S. Senate confirmed to the Fed board on Tuesday.
“Warsh is not going to be able to cut rates even if he wants to, and I don’t think he will want to,” Hatfield said.
The odds of a Fed rate hike are rising. Financial markets are pricing more than a 30% likelihood that the central bank will implement a 25-basis-point increase to its Fed funds target rate in December, up from 21.5% on Monday, according to CME’s FedWatch tool.
Trump is scheduled to travel to Beijing this week to meet Chinese counterpart Xi Jinping to address a wide array of issues, including tariffs, U.S. military aid to Taiwan, China’s potential role in brokering a peace deal with Iran, and the extension of a trade agreement regarding critical rare earth metals.
The Dow Jones Industrial Average rose 56.09 points, or 0.11%, to 49,760.56, the S&P 500 lost 11.88 points, or 0.16%, to 7,400.96 and the Nasdaq Composite shed 185.92 points, or 0.71%, to 26,088.20.
The Toronto Stock Exchange’s S&P/TSX composite index ended up 151.85 points, or 0.4%, at 34,290.73, marking its highest closing level since April 20.
“You’re seeing more of a buy the dip mentality,” said Michael Dehal, a senior portfolio manager at Dehal Investment Partners at Raymond James. “People are bracing for some kind of energy-driven inflation shock that we could get and that’s why we’re seeing more buying pressure on commodity stocks.”
The TSX energy sector added 2.4% as the price of U.S. crude oil settled 4.2% higher at US$102.18 a barrel.
Consumer staples gained 1.1% in Toronto and the materials group, which includes metal mining shares, ended 0.8% higher. Copper prices rose 1.9% to move above Monday’s record closing high as funds bet on further gains due to supply issues and bullish technical signals.
Among the sectors that lost ground in Canada was technology. It fell 1.7%, with shares of e-commerce company Shopify Inc down 2.4%.
Pet Valu Holdings Ltd shares tumbled nearly 14% to a record low after the pet food retailer’s first-quarter profit fell on higher operating costs.
Canadian bond yields moved higher across the curve, tracking moves in U.S. Treasuries. The 10-year was up 5.5 basis points at 3.594%, marking its highest level since last Tuesday.
Of the 11 major sectors in the S&P 500, consumer discretionary and tech suffered the largest percentage losses, while health care and consumer staples led the gainers.
Humana advanced 7.7% after Bernstein’s 36% price target hike. GameStop dipped 3.5% following eBay’s rejection of the meme stock trailblazer’s $56 billion takeover bid.
Zebra Technologies jumped 11.4% after the barcode scanner maker raised its annual sales growth forecast, betting on robust demand for its products that help automate manufacturing workflows.
Hims & Hers Health tumbled 14.1% after the telehealth firm missed Wall Street estimates for first-quarter revenue and posted a surprise loss.
Venture Global jumped 14.2% after the LNG exporter raised its annual adjusted core profit forecast.
Declining issues outnumbered advancers by a 1.79-to-1 ratio on the NYSE. There were 199 new highs and 125 new lows on the NYSE. On the Nasdaq, 1,605 stocks rose and 3,134 fell as declining issues outnumbered advancers by a 1.95-to-1 ratio. The S&P 500 posted 16 new 52-week highs and 29 new lows while the Nasdaq Composite recorded 62 new highs and 167 new lows.
Volume on U.S. exchanges was 19.63 billion shares, compared with the 18.08 billion average for the full session over the last 20 trading days.
Reuters, Globe staff