US stocks took a sharp nosedive on Tuesday, rattling Wall Street investors amid growing concerns about the strength of the American consumer.
The Dow Industrial Average (DJIA), which is used to measure the overall performance of the stock market, closed Tuesday's trading session 697.10 points in red territory. The S&P 500 fell by 2.0% to 81.75 points, with the Nasdaq Composite plummeting by 2.50% to 294.97 points.
The indices' closing figures marked their worst downturn since December 15. The worst-performing Dow member on Tuesday was big box store Home Depot, which lost 6% after they posted weaker-than-expected revenue for their fourth quarter.
The latest grim forecasts on Wall Street suggest the Federal Reserve isn’t done hiking interest rates, in what they view as an effort to cool inflation. However, Chris Hussey, a managing director with Goldman Sachs, explains the economy isn’t necessarily doomed even as interest rates may grow.
“Back in the fall, the concern was that too-high rates are going to induce a US recession. But today, the concern has been flipped on its head: too strong growth is going to keep rates high,” Hussey explained in a Tuesday note.
“Rates may be on a round trip to 4%, but they are traveling on a very different road than the one they were on the last time we saw 4% 10-year yields,” the analyst continued. “Most companies would much rather operate in an environment of sustained higher rates and sustained high growth than one of high rates and declining activity.”
Goldman Sachs also revealed an optimistic outlook for what the economy can expect from rate hikes in the future, noting that the worst of the interest rate increases are “largely behind us.”
“That leaves us with only the impact from the latest hikes and the 75bp of additional hikes we expect this year — suggesting that the economy may remain on firm ground even as the Fed tweaks rates higher this year,” added Hussey.
The latest comes as the Federal Reserve will be releasing the minutes from their January 31 through February 1 meeting on Wednesday at 2 p.m. local time, which may shift the direction of the market. Last week, St. Louis Federal President James Bullard revealed that a 50 basis point rate hike can’t be “ruled out,” and said that he had advocated for such a hike.