Wall Street Sinks on Worries About High Rates as Health Care Stocks Tumble
Wall Street experienced a downturn on Tuesday as concerns over persistently high interest rates weighed heavily on investor sentiment. The S&P 500 saw a decline of 1% in early trading, signaling a potential second dip following the all-time high it reached at the close of last week. Concurrently, the Dow Jones Industrial Average experienced a 1.1% drop, distancing itself further from its record high, while the Nasdaq composite dipped 1.5%.
The significant rally seen in the U.S. stock market since late October has been largely fueled by expectations of interest rate cuts by the Federal Reserve several times this year. Although the Fed has hinted at such a possibility, it has also emphasized the need for more evidence that inflation is consistently moving towards its 2% target.
However, these expectations faced a setback following a surprisingly strong U.S. manufacturing report on Monday, which indicated a return to growth after 16 consecutive months of contraction. This resilience in the U.S. economy may potentially exert upward pressure on inflation, especially given recent signs that progress on inflation has become more unpredictable with reports this year coming in hotter than expected.
As a result, traders have significantly scaled back their expectations for the number of times the Federal Reserve will cut interest rates this year, aligning more closely with the Fed officials’ hints at three potential cuts.
Beyond the concerns surrounding interest rates, some critics argue that the U.S. stock market may have become overvalued after its rapid six-month surge of more than 20%. To justify such gains, companies will need to demonstrate strong profit growth.
A notable drop in several healthcare stocks further dragged on the market, following the U.S. government’s announcement of Medicare Advantage rates for 2025, which were significantly lower than anticipated. This led to notable declines in stocks such as Humana, which fell by 9.9%, and UnitedHealth Group, which dropped by 5.5%. CVS Health also saw a 6.2% decrease.
Additionally, PVH Corp., the parent company behind Calvin Klein and Tommy Hilfiger, lost more than a fifth of its value. Despite reporting higher-than-expected profits for the latest quarter, its forecast for the upcoming year disappointed analysts, mainly due to weakness in Europe, resulting in a 23.4% plummet in its stock price.
In Europe, the markets also experienced a downturn, with a 0.8% decline in both Paris and Germany’s DAX, while London’s FTSE 100 edged slightly lower by 0.1%.
The performance in Asian markets was more mixed, with Hong Kong’s Hang Seng making a notable leap of 2.4%, although other regions saw relatively modest movements.
As investors navigate through these turbulent times with high rates and shifting expectations, the stock market’s resilience is being tested, thereby affecting broader economic sentiments globally.
