S&P 500 drops as recession fears take center stage

By Noel Randewich and Ankika Biswas

(Reuters) – The and Nasdaq fell on Wednesday as a growing wave of weak economic data deepened worries that the Federal Reserve’s rapid interest rate hikes might tip the U.S. economy into a recession.

Nvidia Corp (O:) dropped 2.8% and was among the stocks weighing most on the S&P 500 after Alphabet (NASDAQ:) Inc’s Google unit said the supercomputers it uses to train its artificial intelligence models were faster and more power-efficient than comparable systems made by the chipmaker.

Tesla (NASDAQ:) Inc fell 3.5% while Amazon (NASDAQ:), Apple (NASDAQ:) and Microsoft (NASDAQ:) each lost more than 1%.

Caterpillar (NYSE:), viewed as a bellwether for the industrial sector, dropped more than 2%, bringing its loss over the past two days to about 7% as investors fretted about a potential economic downturn.

Driving the recession fears, the ADP National Employment report showed U.S. private employers hired far fewer workers than expected in March. That followed Tuesday’s weak job openings data.

As well, the Institute for Supply Management’s survey showed the services sector slowed more than expected last month on cooling demand, while a measure of prices paid by services businesses fell to a near three-year low.

Earlier this week data showed falling factory orders and soft manufacturing activity.

Wall Street’s recent losses in reaction to signs of a slowing economy mark a change from recent months, when investors cheered weak economic data on the basis that it might mean the Fed’s interest rate hikes were working and that the Fed could ease up on its campaign to rein in decades-high inflation.

“We may have transitioned from the notion that ‘bad news is good news’ to ‘bad new is bad news’,” said Jay Hatfield, chief executive and portfolio manager at InfraCap in New York. “Fear about a recession is the dominant theme.”

Reflecting worries about the economy and recent turmoil in the banking sector, interest rate futures imply 61% odds that the Fed will cut interest rates from current levels by the end of its July meeting, according to CME Group’s (NASDAQ:) Fedwatch tool.

GRAPHIC: Traders bet on Fed rate cut by July meeting

Helping keep the in positive territory, Johnson & Johnson (NYSE:) gained 3.8% after its $8.9-billion offer to settle talc-related lawsuits gained the support of thousands of claimants, easing an overhang on its plans to list consumer health unit Kenvue.

GRAPHIC: S&P 500’s busiest trades

The S&P 500 was down 0.52% at 4,079.37 points.

The Nasdaq declined 1.36% to 11,961.11 points, while the Dow Jones Industrial Average was up 0.04% at 33,415.50 points.

Of the 11 S&P 500 sector indexes, six declined, led lower by consumer discretionary, down 1.93%, followed by a 1.65% loss in information technology.

Artificial intelligence C3.ai Inc dropped 15%, hit for a second day after a short seller alleged accounting issues. The AI company denied the allegations in an emailed response to Reuters.

FedEx Corp (NYSE:) rose 1.1% as the freight bellwether firm said it will fold its operating divisions into one organization as it steps up efforts to cut costs and increase efficiency.

Declining stocks outnumbered rising ones within the S&P 500 by a 1.5-to-one ratio.

The S&P 500 posted eight new highs and two new lows; the Nasdaq recorded 25 new highs and 218 new lows.