The Dow Jones Industrial Average dipped slightly Tuesday after fears of even higher rates and a looming recession sparked a sell-off during the previous session.
The Dow opened 20 points lower, while the S&P 500 and Nasdaq Composite traded flat.
The Nasdaq Composite led Monday’s downward charge, dropping 1.93% for its biggest one-day drop since Nov. 9. The S&P 500 shed 1.79%, also notching its worst day in nearly a month. The Dow, meanwhile, lost 482 points, or 1.4%.
Better-than-expected November ISM Services data, which looks at the purchasing level of manufacturers as a gauge the health of the broader economy, pressured equities Monday. The report stoked fears that the Federal Reserve will need to hike rates for longer than anticipated to bring down inflation. The release aligns with the payrolls report late last week in pointing to resilience within some areas of the economy.
Markets are largely expecting a 50 basis point rate hike at the Fed’s December meeting, but remain conflicted over how long the central bank’s interest rate hiking campaign will need to last.
Despite this backdrop, markets could still move higher in the months ahead, even though slowing growth and higher rates will persist into the new year, wrote Jason Draho, UBS’ head of asset allocation, in a note to clients.
“A year-end rally may still be in the offing, though investors are likely to remain skittish until November CPI is released on the 13th and the FOMC meeting concludes on the 14th,” he said. “If there are no surprises with these events, momentum could continue.”
Investors will look ahead to data Tuesday morning on international trade for insight into the strength of the U.S. and global economy. Later in the day, they will watch for post-bell earnings reports from Smith & Wesson and Stitch Fix.
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