Stocks end mixed after bear market slide as rate decision looms

U.S. stocks ended mixed on Tuesday following a plunge that sent the S&P 500 into its first bear market since the height of the pandemic.

The S&P 500 ended lower by 0.4% in a fifth consecutive session of losses, bringing the index down to 3,735.48. The S&P 500 entered its first bear market since March 2020 on Monday, as its closing price put it more than 20% below its recent record closing high from Jan. The Nasdaq Composite held onto narrow gains of about 0.2% to bring the index to 10,828.35, while the Dow shed 150 points, or 0.5%, to end at 30,364.83.

The benchmark yield on the 10-year Treasury note rose to top 3.4% and reach a fresh 11-year high. The monetary policy-sensitive two-year yield also built on gains to reach its highest since 2007. Oil prices rose, and U.S. West Texas intermediate crude oil futures broke back above $122 per barrel. Bitcoin (BTC-USD) remained under pressure as prices held just over $22,000.

Volatility resurged across markets at the start of the week as investors raced to price in a greater likelihood of a larger interest rate hike from the Federal Reserve as it races to address inflation. Market participants expect the Federal Open Market Committee (FOMC) will raise interest rates by the 75 basis points this week, with CME Group data showing Tuesday that traders were pricing in a more than 90% probability of such an outcome. The FOMC begins its two-day policy-setting meeting on Tuesday, with a decision and press conference from Federal Reserve Chair Jerome Powell set for Wednesday.

Expectations for a much larger-than-typical rate hike soared after the Wall Street Journal reported Monday that a 75 basis point hike was on the table among Fed officials. And talk and market pricing of such a hike had already been building after Friday’s much hotter-than-expected May CPI print, and after separate surveys in the days since showed consumers’ near-term inflation expectations were increasing to levels at or near all-time recorded highs.

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“The Fed’s previous plan to hike by 50bp [basis points] at the meetings in June and July and then revert to 25bp increases in the fall was always dependent on inflation showing signs of cooling,” Paul Ashworth, chief North America economist at Capital Economics, wrote in a note Tuesday. “Instead, the monthly gains in core CPI accelerated back to 0.6% in both April and May, suggesting that price pressures are broadening.”

New data Tuesday also showed wholesaler price increases also remained elevated last month. The Producer Price Index (PPI) jumped 10.8% in May over last year after a 10.9% jump in April, according to the Bureau of Labor Statistics. Nearly two-thirds of the May rise came from a jump in final demand goods prices including energy, which jumped 5% on a monthly basis.

And other recent reports further suggested businesses’ concerns over inflation remained elevated. The latest NFIB Small Business Optimism survey Tuesday showed inflation remained the top problem reported among small business owners. The share of business owners raising their own selling prices rose to match a record high in the 48-year-old survey.

On the move

Gainers

• FedEx (FDX) shares jumped by as much as 15.6% intraday on Tuesday after the company raised its dividend, announced it will tie executive compensation to shareholder returns, and added two new board members, with a third director on the way at a later date. The moves follow pressure for changes at the shipping giant from activist investor D.E. Shaw.

• Oracle (ORCL) shares ended higher by more than 10% after the software company topped fiscal fourth quarter earnings and sales estimates in results delivered Monday afternoon. Cloud licensing revenue drove the beat as sales in that unit jumped 18%.

• Twitter’s (TWTR) staff is set to hear from Elon Musk this week, with the billionaire set to make his first appearance at a Twitter all-hands meeting since first announcing his $44 billion plan to buy the social media company in April, Insider reported Tuesday. Shares pared earlier gains but still ended higher by about 0.7%.

Decliners

• Compass (COMP) and RedFin Corporation (RDFN) each announced layoffs on Tuesday as slowing housing market activity hit major real estate firms. Compass said it will lay off about 10% of its workforce, or about 450 positions, while RedFin said it had asked 8% of its employees to leave the company.

• Coca-Cola (KO) said it will delay a planned initial public offering of Coca-Cola Beverages Africa on the Johannesburg Stock Exchange until 2023 due to present market uncertainty. Shares ended lower by 2.7%.

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Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter.

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