Wall Street's main indexes fell on Tuesday after US Federal Reserve Governor Lael Brainard said she expects rapid reductions to the central bank's balance sheet, spooking investors already on edge about the prospect of fresh sanctions on Russia.
The tech-heavy Nasdaq led losses as expectations of quicker interest rate hikes dulled the appeal for high-growth stocks. Amazon.com Inc, Apple Inc and Nvidia Corp fell between 1.4% and 3.8%.
Six of the 11 major S&P 500 sectors advanced in mid-day trading, with utilities stocks hitting a new record high. Technology and consumer discretionary shares fell more than 1.5% each, offsetting gains.
“What is spooking the market is the phrase 'at a rapid pace' because that implies they (Fed) will not only allow bonds to mature, but will also be selling bonds in order to get to a more neutral policy by the end of the year,” said Sam Stovall, chief investment strategist at CFRA Research in New York.
“That's what's causing investors to be concerned - the speed and aggressiveness of the Fed with its balance sheet reductions.”
Investors now expect nearly 78.8% odds of a 50 basis points rate hike at the US central bank's meeting in May, a slight rise from 74.9% in the previous session, according to CME Group's Fedwatch tool.
Brainard said she expects methodical rate hikes and that the Fed will quickly ramp up reductions to its nearly $9 trillion balance sheet to a “considerably” more rapid pace of runoff than the last time.
US Treasury yields rose to multi-year highs following Brainard's statement, with longer-term yields moving faster and partly reversing some of the recent inversion moves in the US curve.
Wall Street opened lower, with the European Union's executive proposing sweeping new sanctions against Moscow, including a ban on coal imports, as the West responds to evidence of civilian killings in a Ukrainian town seized from Russian invaders.
At 11:52 a.m. ET, the Dow Jones Industrial Average was down 43.01 points, or 0.12%, at 34,878.87, the S&P 500 was down 25.29 points, or 0.55%, at 4,557.35, and the Nasdaq Composite was down 236.89 points, or 1.63%, at 14,295.66.
Meanwhile, data from the Institute for Supply Management showed US services industry activity picked up in March, boosted by the rolling back of pandemic restrictions, but businesses continued to face higher costs as supply strains persisted.
Micro-blogging site Twitter Inc gained 4.5%, adding to its 27% surge in the previous session, after saying it will name top shareholder and Tesla Inc CEO Elon Musk to its board.
Carnival Corp rose 3.4% after the cruise operator reported its highest booking week in its history, boosting peers Norwegian Cruise Line Holdings Ltd and Royal Caribbean Cruises Ltd 1.2% and 0.6%, respectively.
Declining issues outnumbered advancers for a 2.68-to-1 ratio on the NYSE. Declining issues outnumbered advancers for a 2.08-to-1 ratio on the Nasdaq.
The S&P index recorded 41 new 52-week highs and five new lows, while the Nasdaq recorded 43 new highs and 52 new lows.