S&P 500, Nasdaq slide as weak economic data, dire outlooks stoke recession fears

3/3 © Reuters. FILE PHOTO: Snapchat app is seen on a smartphone in this illustration taken, July 13, 2021. REUTERS/Dado Ruvic/Illustration 2/3

By Stephen Culp

NEW YORK (Reuters) - The S&P 500 and the Nasdaq finished in the red on Tuesday as worries that aggressive moves to curb decades-high inflation might tip the U.S. economy into recession dampened investors' risk appetite.

All three major U.S. stock indexes pared their losses in afternoon trading, with the blue-chip Dow turning positive. Even so, the S&P 500 ended just 2.2 percentage points above confirming it has been in a bear market since reaching its all-time high on Jan. 3.

"As we step back and acknowledge the primary market

catalysts, it’s really been about the Fed pivot and the change

in interest rates, which have influenced prices across the

capital markets," said Bill Northey, senior investment director

at U.S. Bank Wealth Management in Helena, Montana.

"In the last two weeks, we’ve seen some degree of

macroeconomic deterioration starting to be manifested in

corporate earnings and economic releases."

Much of the sell-off was driven by a profit warning from

Snap Inc (NYSE:SNAP), which sent the company's shares plummeting

43.1%, sparking contagion throughout the social media segment.

Meta Platforms Inc, Alphabet (NASDAQ:GOOGL) Inc, Twitter Inc (NYSE:TWTR) and Pinterest (NYSE:PINS) Inc were down between 5% and 24%, and the broader S&P 500 Communications Services sector slid 3.7%.

Global supply chain disruptions have been exacerbated by

Russia's war with Ukraine and restrictive measures in China to

control its latest COVID-19 outbreak, sending inflation to

multi-decade highs.

The U.S. Federal Reserve has vowed to aggressively tackle

persistent price growth by hiking the cost of borrowing, and

minutes from its most recent monetary policy meeting, expected

on Wednesday, will be parsed by market participants for clues

regarding the speed and extent of those actions.

Investors currently expect a series of 50-basis-point rate

hikes over the next several months, fueling fears that the

central bank could push the economy into recession, a scenario

that is increasingly being baked into analyst projections.

"Tomorrow we look to the FOMC minutes for any signs that the

approach to monetary policy may lean further hawkish or dovish

than was laid out at the last meeting," U.S. Bank Wealth

Management's Northey said.

Data released on Tuesday painted a picture of waning

economic momentum, with new home sales plunging and business

activity decelerating.

Fed Chair Jerome Powell's counterpart in Frankfurt, European

Central Bank President Christine Lagarde, said she expects the

ECB deposit rate to be raised at least 50 basis points by the

end of September,

The Dow Jones Industrial Average rose 48.38 points,

or 0.15%, to 31,928.62; the S&P 500 lost 32.27 points, or

0.81%, to 3,941.48; and the Nasdaq Composite dropped

270.83 points, or 2.35%, to 11,264.45.

Six of the 11 major sectors of the S&P 500 ended the session

in negative territory, with communication services and consumer

discretionary suffering the biggest percentage losses.

Apparel retailer Abercrombie & Fitch Co tumbled

28.6% after posting a surprise quarterly loss and cutting its

annual sales and margins outlook.

Work-from-home darling Zoom Video Communications (NASDAQ:ZM) Inc

jumped 5.6% following its full-year profit hike due to solid

enterprise demand.

Declining issues outnumbered advancing ones on the NYSE by a

1.28-to-1 ratio; on Nasdaq, a 2.37-to-1 ratio favored decliners.

The S&P 500 posted three new 52-week highs and 40 new lows;

the Nasdaq Composite recorded 17 new highs and 443 new lows.

Volume on U.S. exchanges was 11.78 billion shares, compared

with the 13.33 billion average over the last 20 trading days.