By Sinéad Carew and Lisa Pauline Mattackal
(Reuters) -Wall Street's three major indexes closed lower on Tuesday as investors booked some profits from a post-election rally and waited anxiously for U.S. inflation data due this week.
The indexes had rallied to record highs since the Nov. 5 U.S. election as investors bet on a boost to equities from President-elect Donald Trump's proposed tax cuts and the prospect of easier regulatory policies.
But investor enthusiasm dampened on Tuesday with concerns around whether the next U.S. administration's policies would exacerbate inflation. European shares lost 2% as European Central Bank policymakers warned that increased tariffs from Trump would hamper global growth.
Some of the stocks expected to perform well under Trump gave back gains with shares in electric car maker Tesla (NASDAQ:TSLA) closing down 6% on Tuesday after rising nearly 40% since Election Day.
The small-cap Russell 2000 index fell 1.8% after closing at a three-year high on Monday. And rising U.S. Treasury yields hurt equities as bond investors priced in Trump policies.
"The 10-year Treasury yield is kind of creating a headwind against the equity rally. There's sort of these conflicting signals where investors are celebrating all of these growth initiatives but the bond market is pushing back," said Jack Ablin, chief investment officer at Cresset Capital.
"The problem is between tariffs, tax cuts and immigration restrictions, it really is pushing on creating inflation pressure that the bond market can't ignore."
Russell Price, chief economist at Ameriprise Financial (NYSE:AMP), said the decline in stocks overseas added some pressure to U.S. stocks, along with profit-taking ahead of inflation data.
"When we opened up already experiencing some downside with the very strong run that we've had, investors tend to look to take some profits just in case stocks continue to slide," Price said.
On investors' radar is Wednesday's consumer price inflation data, followed by producer prices inflation and retail sales data later this week, as these could provide clues about the U.S. Federal Reserve's policy path going forward.
The data presents a near-term risk to investments, said Price. "It very likely is contributing to a little bit of the downside that we're seeing today."
The Dow Jones Industrial Average fell 382.15 points, or 0.86%, to 43,910.98, the S&P 500 lost 17.36 points, or 0.29%, to 5,983.99 and the Nasdaq Composite lost 17.36 points, or 0.09%, to 19,281.40.
The Dow's biggest decliner was Amgen (NASDAQ:AMGN), which closed down more than 7% due to a late-session sell-off.
Brokerage Cantor Fitzgerald said Amgen's experimental obesity drug MariTide showed a 4% loss in bone mineral density in data that was published in February.
Among the S&P 500's 11 major industry sectors, materials led declines with a 1.6% loss followed by healthcare, which was dragged down by Amgen.
The communications services index was the biggest sector gainer, adding 0.5%.
Meanwhile Minneapolis Federal Reserve Bank President Neel Kashkari said Tuesday afternoon that U.S. monetary policy is "modestly restrictive," with short-term borrowing costs continuing to slow inflation and the economy, but not by a lot.
Richmond Fed President Thomas Barkin had said earlier in the day that the U.S. central bank is ready to respond if inflation pressures rise or the job market weakens.
Biotech firm Novavax (NASDAQ:NVAX) dropped 6% after cutting its annual revenue forecast due to lower-than-expected sales of its COVID-19 vaccine.
Honeywell (NASDAQ:HON) hit a record high and closed up 3.8% after activist investor Elliott Investment said it has built a stake worth more than $5 billion in the industrial conglomerate.
Declining issues outnumbered advancers by a 3.48-to-1 ratio on the NYSE where there were 328 new highs and 101 new lows.
On the Nasdaq, 1,328 stocks rose and 3,012 fell as declining issues outnumbered advancers by a 2.27-to-1 ratio. The S&P 500 posted 55 new 52-week highs and 16 new lows while the Nasdaq Composite recorded 193 new highs and 129 new lows.
On U.S. exchanges, 15.29 billion shares changed hands compared with the 13.17-billion average for the last 20 sessions.