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 healthcare stocks, buoyed by a jump in Humana HUM.N, helped keep the Dow in positive territory.
Despite the selloff, the S&P 500 and the Nasdaq remain close to all-time highs.
As reporting season wraps up, investors are increasingly focused on valuations, macroeconomics and geopolitical developments.
While the PHLX Semiconductor index .SOX 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.
CONSUMER PRICE RISE DISAPPOINTS
Economic data showed consumer prices rose at a faster pace last month 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 Fed 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, adding he was optimistic about Warsh's Fed reform plans.
The odds of a rate hike are rising. Financial markets are pricing in a 30.5% 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 an 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 on critical rare earth metals.
The Dow Jones Industrial Average .DJI rose 56.09 points, or 0.11%, to 49,760.56, the S&P 500 .SPX lost 11.88 points, or 0.16%, to 7,400.96 and the Nasdaq Composite .IXIC shed 185.92 points, or 0.71%, to 26,088.20.
Of the 11 major sectors in the S&P 500, consumer discretionary .SPLRCD and tech .SPLRCT suffered the largest percentage losses, while healthcare .SPXHC and consumer staples .SPLRCS led the gainers.
Humana HUM.N advanced 7.7% after Bernstein's 36% price target hike.
GameStop GME.N dipped 3.5% following eBay's EBAY.Orejection of the meme stock trailblazer's $56 billion takeover bid.
Zebra TechnologiesZBRA.O 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 HIMS.N tumbled 14.1% after the telehealth firm missed Wall Street estimates for first-quarter revenue and posted a surprise loss.
Venture GlobalVG.N 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
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