Wall Street sinks on rate concerns

Major indexes drop 1 percent as health care stocks, Tesla take tumble

NEW YORK — U.S. stocks sank Tuesday as Wall Street hit the brakes on what’s been a nearly unstoppable romp.

The S&P 500 fell 37.96 points, or 0.7 percent to 5,205.81 for its worst day in four weeks. It was its second straight drop after setting an all-time high to close last week.

Other indexes did worse.

The Dow Jones Industrial Average lost 396.61 points, or 1 percent, to 39,170.24 and likewise pulled further from its record. The Nasdaq composite fell 156.38, or 1 percent, to 16,240.45, and the small stocks in the Russell 2000 index tumbled 1.8 percent.

Health insurance companies led the market lower on worries about their upcoming profits after the U.S. government announced lower-than-expected rates for Medicare Advantage. Humana tumbled 13.4 percent.

Tesla, meanwhile, dropped 4.9 percent after delivering fewer vehicles for the start of 2024 than analysts expected.

One of the big reasons the U.S. stock market has screamed higher since late October is the expectation that the Federal Reserve will cut interest rates several times this year. The central bank itself has hinted as much, and an easing of rates would relieve pressure on both the economy and financial system.

But Fed officials have also said they need further confirmation inflation is heading sustainably down to their 2 percent target before acting.

A surprisingly strong report on U.S. manufacturing Monday, which showed a return to growth after 16 straight months of contraction, hurt those expectations.

It’s the latest evidence of a remarkably resilient U.S. economy.

That keeps people employed and corporate profits humming, but it could also add upward pressure on inflation. Progress there has become bumpier recently, with inflation reports this year coming in hotter than expected.

Traders have already drastically reduced their expectations for how many times the Federal Reserve will cut interest rates this year, halving them from a forecast of six at the start of the year.

That would be in line with the three cuts that Fed officials themselves have hinted at.

Because the U.S. economy has remained stronger than expected, investors say the chances are rising that the Fed may deliver just two rate cuts this year.