Stocks were mostly mixed on Tuesday as fears of a possible US recession weighed on investor sentiment, but lower interest rates appeared to give the tech sector a boost in the afternoon rally.
The Dow Jones Industrial Average fell about 186 points, or about 0.6%, after falling roughly 700 points earlier in the session. The S&P 500 was little changed after falling more than 2% earlier in the session. The tech-heavy Nasdaq Composite outperformed, rising more than 1%.
Concerns about economic growth loom over investors as the U.S. market looks to recover from a tough first half of the year. The market has fallen in four of the past five weeks, and the S&P 500 is more than 20% below its record high. Some economists believe that U.S. GDP fell in both quarters at the start of the year, a shorthand used by many to signal a recession.
The benchmark 10-year Treasury yield and the 2-year yield turned on tuesday, a move that has a strong historical track record as a recession indicator. When short-term government bond yields trade above long-term yields, it can be a sign that investors expect an economic slowdown to lead to lower interest rates.
Stocks linked to economic growth fell sharply on Tuesday, with machinery names Deere and Caterpillar falling more than 3% to their lowest levels of the year. Mining shares Freeport-McMoRan fell 7%.
Ford shares fell nearly 2% after the automaker sales in the second quarter grew more slowly than expected. Bank stocks were broadly lower, with JPMorgan Chase down about 1%.
“The US market is all about pricing in a delay and pricing in the fact that the Fed is forced to raise interest rates until a delay,” Allianz chief economic adviser Mohamed El-Erian told “Squawk Box.”
The price of oil also fell, reflecting a possible economic slowdown. The US benchmark West Texas Intermediate fell below $100 a barrel. Shares of oil giant Chevron fell more than 3%.
The dip in interest may have boosted growth-oriented tech stocks, helping the Nasdaq outperform. Docusign and Zoom Video were up about 5%. Consumer discretionary stocks also helped the market recover from session lows, with Amazon climbing 3% and Nike gaining 2.4%.
Markets ended one of their worst half-terms in decades on Thursday, and some on Wall Street believe the economic slowdown is weighing on stocks somewhat.
The prospects for the second half of the year are gloomy. Credit Suisse strategist Jonathan Golub said in a note to clients on Tuesday that he expects the U.S. to avoid a recession, but cut his year-end target for the S&P 500 to 4,300 from 4,900. The new target would mean Wall Street would regain about half of your losses from the first six months of the year.
“Recessions are most accurately characterized by a collapse in employment accompanied by an inability of consumers and businesses to meet their financial obligations. While we are currently experiencing a significant slowdown in economic growth (from extremely high levels), none of the above conditions are present today,” Golub wrote.
In this shortened holiday week, investors are looking ahead to publication of the June jobs report date on Friday. Dow Jones estimates job growth likely slowed in June with 250,000 nonfarm payrolls added, down from 390,000 in May. Economists polled expect the unemployment rate to remain at 3.6%.
Factory orders for May, released on Tuesday, showed stronger-than-expected growth.
The economic calendar for this week also includes the publication on Wednesday of the minutes of the last meeting of the Federal Reserve.
On the political front, investors watched President Joe Biden’s looming decision on whether his administration would roll back Trump-era tariffs on Chinese goods. White House officials hope the change will help ease the inflationary burden.