By Yasin Ebrahim
Investing.com -- The Dow cut some losses Thursday, but remained firmly in the red as growth sectors of the market including consumer and tech stocks floundered on fears that the Federal Reserve’s increasingly hawkish stance could tip the economy into recession.
The Dow Jones Industrial Average slipped 0.3%, or 107 points, the Nasdaq was down 1.4%, and the S&P 500 fell 0.9%.
The Fed’s 0.75% rate hike on Wednesday was largely expected, but its updated forecasts, pointing to further rate hikes, raise the risk of recession.
“The higher the peak the Fed aims for, the greater the risk of recession,” Morgan Stanley said in a note. A material slowdown in job gains, however, could persuade the Fed to “take pressure off the pace of policy tightening,” it added.
The bond market appears to price in the increasing risk of a recession amid deeper inversions in the yield curve. The curve between the 2-year and 10-year Treasury yields further inverted to levels not seen since 1982.
Growth sectors of the market -- typically include higher-valued stocks and are vulnerable to a rising rate environment – such as tech and consumer stocks led the broader market lower.
But the move lower in big tech, however, appeared to attract dip-buyers as megacap tech stocks moved off session lows. Apple (NASDAQ:AAPL) and Amazon.com Inc (NASDAQ:AMZN) were lower, while Meta Platforms Inc (NASDAQ:META), Alphabet (NASDAQ:GOOGL) and Microsoft Corporation (NASDAQ:MSFT) were in the green.
As well as rising rates, consumer stocks continued to reel from increasing geological tensions as Russia’s partial mobilization order has clouded hopes of a resolution to the conflict.
Health care stocks sidestepped the selling, led by Merck & Company Inc (NYSE:MRK), Bristol-Myers Squibb Company (NYSE:BMY), and Eli Lilly and Company (NYSE:LLY) with the latter boosted by an upgrade from UBS.
UBS upgraded Eli Lilly and Company to buy from neutral and lifted its price target on the stock to $363 from $335, citing optimism about the drugmaker’s newly approved type 2 diabetes drug. The drug not only treats type 2 diabetes but was also shown to treat obesity.
Energy stocks were also in the green, underpinned by rising oil prices on fears that the escalation of the war in Ukraine could weigh on supplies.
Valero Energy (NYSE:VLO), Schlumberger (NYSE:SLB) and Marathon Petroleum Corp (NYSE:MPC) were among the biggest gainers in the energy sector.
In other news, Robinhood Markets (NASDAQ:HOOD) reversed gains to turn negative despite reports that the Securities and Exchange Commission won’t ban payment for order flows – a crucial source of revenue for the trading platform.
The weakness in the broader market has pushed stocks further into oversold territory, paving the way for a choppy period ahead.
“Thus, we continue to anticipate a choppy path for stocks in the weeks ahead- noting that after the declines of yesterday and today, stocks for the most part are pressing once again into oversold territory,” Janney Montgomerry Scott said.