Healthcare companies led the decline on concerns about future profits after the U.S. government announced lower-than-expected Medicare Advantage rates. Humana fell 13.6%. Tesla, meanwhile, fell 5.7% after deliveries in early 2024 were far lower than analysts expected.
One of the big reasons the U.S. stock market has been on a near-stop rally since late October is expectations that the Federal Reserve will cut interest rates several times this year. It has been suggested as well that interest rate easing would reduce pressure on both the economy and the financial system.
But Fed officials also said they needed further confirmation that inflation was falling sustainably toward its 2% target before acting. A surprisingly strong report on U.S. manufacturing released Monday, showing a return to growth after 16 straight months of contraction, hurt those hopes.
This is the latest evidence that the U.S. economy is remarkably resilient, but it could also increase upward pressure on inflation. Inflation developments have become increasingly difficult of late, with reports this year more grim than expected.
Traders have already sharply lowered their expectations for how many rate cuts the U.S. Federal Reserve will cut this year, halving them from the six they expected at the start of the year. This would be in line with three rate cuts that Fed officials themselves have been hinting at.
Monday’s manufacturing report led traders to place some bets on only two production cuts this year, according to CME Group data. But traders still believe the third round of cuts this year will start in June after reports on Tuesday showed US employers advertised almost the same number of jobs in February as they did a month ago. Most people predict that.
In the bond market, the yield on the 10-year U.S. Treasury rose to 4.36% from 4.33% late Monday.
The two-year Treasury yield, which is more closely tied to expectations for Fed action, fell to 4.69% from 4.71% as of late Monday.
High interest rates are designed to slow down the economy by making borrowing more expensive. Investment prices also fall, as it becomes more attractive for investors to put their money into safer alternatives. Bitcoin fell 5.4% to $66,000.
In addition to concerns that interest rates will remain high, critics say the U.S. stock market is simply too expensive, having soared more than 20% in six months. The company will likely need to grow its profits significantly to justify such a big move.
On Wall Street, several health care stocks led the market decline as concerns about future earnings grew. Analysts at Citi Research said the final Medicare Advantage rate approved by the government was much lower than expected, given rising health care costs and extensive industry lobbying.
UnitedHealth Group fell 6.5% and CVS Health fell 8.3%.
PVH, which owns Calvin Klein and Tommy Hilfiger, lost more than a fifth of its value even though it reported stronger profits than analysts expected in its latest quarter. Due in part to the slump in the European economy, next year’s profit forecast was lower than analysts’ expectations, and the stock price fell 22.6%.
Among the few stocks that rose on Wall Street were stocks of oil and gas producers. Exxon Mobil rose 1.4% and ConocoPhillips rose 1.2%.
It followed the rise in crude oil prices. Benchmark U.S. crude oil rose 0.8% to $84.39 a barrel, returning to October levels. Brent crude oil, the international standard, rose 0.8% to $88.15 per barrel.
In Europe, stock prices fell 1% on the Paris market. Germany’s DAX fell 1.1% and London’s FTSE 100 fell 0.2%.
In Asia, the index was mixed. Hong Kong’s Hang Seng rose 2.4%, but movements elsewhere were much more modest.
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Associated Press writers Matt Ott and Zimo Zhong contributed.
