Wall Street slips on rate-hike jitters

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Wall Street’s main indexes slipped in choppy trading on Monday, extending declines for a third straight session, on worries that the Federal Reserve’s aggressive interest rate hikes could tip the U.S. economy into recession.

Five of the 11 S&P 500 sectors were lower. Healthcare stocks fell 1.6%, weighed down by a 9.5% fall in shares of Moderna Inc and similar declines in those of other vaccine makers a day after President Joe Biden said in a CBS interview that “the pandemic is over.”

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The S&P 500 and the Nasdaq logged their worst weekly percentage drop since June on Friday as markets fully priced in at least a 75-basis-point rise in rates at the end of Fed’s Sept. 20-21 policy meeting, with Fed funds futures showing a 15% chance of a whopping 100 bps increase.

Unexpectedly hot August inflation data last week also raised bets on increased rate hikes down the road, with the terminal rate for U.S. fed funds now at 4.46%.

“The path of least resistance is still down. The trend followers out there will continue to try to sell every chance they get until we start to see some clarity (on Fed and inflation),” said Joe Saluzzi, co-head of equity trading at Themis Trading LLC.

“We haven’t seen a widespread panic selling or anything like that over the year, it’s a lower volume market which means that folks are probably just sitting tight at this point waiting to see the next step.”

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Focus will also be on new economic projections, due to be published alongside the policy statement at 2 p.m. ET (1800 GMT) on Wednesday.

Worries of Fed tightening have led to a 19% decline in the S&P 500 this year, with a recent dire earnings report from delivery firm FedEx, an inverted U.S. Treasury yield curve and warnings from the World Bank and the IMF about an impending global economic slowdown adding to the woes.

“I think a recession is very likely. The Fed regards a recession as regrettable, but necessary to fight inflation,” said Christopher Grisanti, chief equity strategist at MAI Capital Management in Cleveland.

Goldman Sachs cut its forecast for 2023 U.S. GDP late on Friday as it projects a more aggressive Fed and sees that pushing the jobless rate higher than it previously expected.

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At 11:38 a.m. ET, the Dow Jones Industrial Average was down 90.01 points, or 0.29%, at 30,732.41, the S&P 500 was down 15.14 points, or 0.39%, at 3,858.19, and the Nasdaq Composite was down 54.43 points, or 0.48%, at 11,393.97.

Industrial stocks rebounded 0.5% after a sharp drop on Friday. Banks gained 0.5%. Tech heavyweights Apple Inc and Tesla Inc rose more than 1% each to provide the biggest boost to S&P 500 and the Nasdaq.

Take-Two Interactive Software Inc dipped 1% after it confirmed that a hacker had leaked the early footage of Grand Theft Auto VI, the next installment of the best-selling videogame.

The CBOE volatility index, also known as Wall Street’s fear gauge, rose to 26.67 points.

Declining issues outnumbered advancers for a 1.31-to-1 ratio on the NYSE and for a 1.92-to-1 ratio on the Nasdaq.

The S&P index recorded no new 52-week high and 24 new lows, while the Nasdaq recorded 14 new highs and 298 new lows. (Reporting by Devik Jain and Shreyashi Sanyal in Bengaluru; Editing by Shounak Dasgupta and Anil D’Silva)