Wall Street has worst day in 2 months

Ongoing interest rate concerns send all 3 indexes into 2% drop

NEW YORK — Stocks tumbled to their worst day in two months Tuesday, buckling under worries about higher interest rates and their tightening squeeze on Wall Street and the economy.

The S&P 500 fell 2 percent — 81.75 points to 3,997.34 — for its sharpest drop since the market was selling off in December. The Dow Jones Industrial Average lost 697 points, or 2.1 percent, to drop to 33,129.59, while the Nasdaq composite sank

2.5 percent, or 294.97 points to 11,492.30.

Home Depot fell to one of the market’s larger losses after giving financial forecasts that fell short of Wall Street’s expectations. It dropped

7.1 percent despite reporting stronger profit for the last three months of 2022 than expected.

The retailer said it would spend $1 billion to increase wages for hourly U.S. and Canadian workers. That fed into broader worries for markets that rising costs for companies have been eating into profits, which are one of the main levers that set stock prices.

The other main lever is also looking precarious as interest rates continue to rise. When safe bonds are paying higher amounts of interest, they make stocks and other investments look less attractive. Why take a lot of risk on stocks if safer things are paying out more? Higher rates also raise the risk of a recession because they slow the economy in hopes of snuffing out inflation.

Rates and stock prices are high enough that strategists at Morgan Stanley say U.S. stocks look to be more expensive than at any time since 2007.

The yield on the 10-year Treasury, which helps set rates for mortgages and other important loans, leaped further to 3.95 percent from 3.82 percent late Friday. The two-year yield, which moves more on expectations for the Fed, rose to 4.72 percent from 4.62 percent. It’s close to its highest level since 2007.

“That is what’s weighing on the market,” said Keith Lerner, chief market strategist at Truist Advisory Services.

Yields have shot higher this month as Wall Street ups its forecasts for how high the Federal Reserve will take short-term interest rates in its efforts to stamp out inflation. The Fed has already pulled its key overnight rate up to a range of 4.50 percent to

4.75 percent, up from basically zero at the start of last year.

Several reports to show the economy remains stronger than expected. Those allay fears that the economy may soon fall into a recession, which is a positive for the market.