Fed policymakers map out shift to ‘measured’ hikes

May 18 (Reuters) – Two US central bankers say they expect the Federal Reserve to downshift to a more measured pace of policy tightening after July as it seeks to quell inflation without lifting borrowing costs so high that they send the economy into recession.

It’s not clear if that view – mapped out on Tuesday by Chicago Federal Reserve Bank President Charles Evans and on Wednesday by Philadelphia Fed chief Patrick Harker – marks a consensus at the Fed for how to bring down the highest inflation in 40 years.

But it does suggest that while policymakers broadly back using half-point rate hikes to get short-term borrowing costs to a range of 1.75%-2% over the next two months, support for sticking to that pace beyond July may be limited.

Evans on Tuesday told an audience in New York City that he expects to transition to “measured” rate hikes after an initial burst of policy tightening. In the Fed lexicon, “measured” means quarter-point rate hikes.

On Wednesday Harker gave a similar assessment, telling the Mid-Size Bank Coalition of America that after July, “I anticipate a sequence of increases in the funds rate at a measured pace until we are confident that inflation is moving toward the Committee’s inflation target.”

As he spoke, the S&P 500 and the Dow Jones Industrial Average were tumbling and ended with the sharpest one-day loss in nearly two years.

“I still am in the camp that we can have, if not a soft landing, a safe landing,” Harker said, noting the strength of the labor market, with nearly two jobs open for every American jobseeker, and an unemployment rate of 3.6%.

The US economy will likely grow between 2% and 3% this year, he said, adding, “this economy can withstand a measured, methodical approach to tightening financial conditions.”

Fed policymakers say the current bout of high inflation — running at more than three times the Fed’s 2% target — is the product of outsized demand bumping up against constrained supply.

Fed Chair Jerome Powell has not been specific about his expectations for the policy path beyond July. On Tuesday he said the Fed will keep pushing on rate hikes until it sees clear and convincing evidence that inflation is cooling.

(Writing by Ann Saphir; Editing by Cynthia Osterman)

Wall Street ends sharply lower as Target and growth stocks sink

May 18 (Reuters) – Wall Street ended sharply lower on Wednesday, with Target losing around a quarter of its stock market value and highlighting worries about the US economy after the retailer became the latest victim of surging prices.

It was the worst one-day loss for the S&P 500 and Dow Jones Industrial Average since June 2020.

Target Corp’s (TGT) first-quarter profit fell by half and the company warned of a bigger margin hit on rising fuel and freight costs. Its shares fell about 25%, losing about USD 25 billion in market capitalization, in their worst session since the Black Monday crash on Oct. 19, 1987.

The retailer’s results come a day after rival Walmart Inc. (WMT) trimmed its profit forecast. The SPDR S&P Retail ETF (XRT) dropped 8.3%.

“We think the developing impact on retail spending as inflation outpaces wages for even longer than people might have expected is a principal factor in causing the market sell-off today,” said Paul Christopher, head of global market strategy at Wells Fargo Investment Institute. “Retailers are starting to reveal the impact of eroding consumer purchasing power.”

Interest-rate sensitive megacap growth stocks added to recent declines and pulled the S&P 500 and Nasdaq lower. Amazon (AMZN), Nvidia (NVDA) and Tesla Inc. (TSLA) dropped close to 7%, while Apple (AAPL) fell 5.6%.

“The cons outweigh the pros for growth stocks at this particular moment, and the market is trying to decide how bad it’s going to get,” said Liz Young, head of investment strategy at SoFi. “The market is fearful of the next six months. We may find out that it doesn’t need to be as fearful as this, and markets do tend to overreact on the downside.”

All of the 11 S&P 500 sector indexes declined, with consumer discretionary and consumer staples leading the way lower, both down more than 6%.

Rising inflation, the conflict in Ukraine, prolonged supply chain snarls, pandemic-related lockdowns in China and monetary policy tightening by central banks have weighed on financial markets recently, stoking concerns about a global economic slowdown.

Wells Fargo Investment Institute on Wednesday said it expects a mild US recession at the end of 2022 and early 2023.

Federal Reserve Chair Jerome Powell vowed on Tuesday that the US central bank will raise rates as high as needed to kill a surge in inflation that he said threatened the foundation of the economy.

Traders are pricing in 50-basis point interest rate hikes by the Fed in June and July.

Unofficially, the S&P 500 declined 4.04% to end the session at 3,923.68 points.

The Nasdaq declined 4.73% to 11,418.15 points, while Dow Jones Industrial Average declined 3.57% to 31,490.07 points. The S&P 500 is down about 18% so far in 2022 and the Nasdaq has fallen about 27%, hit by tumbling growth stocks. Almost two-thirds of S&P 500 stocks are down 20% or more from their 52-week highs, according to Refinitiv data.

Wall Street’s recent sell-off has left the S&P 500 trading at around 17 times expected earnings, its lowest PE valuation since the 2020 sell-off caused by the coronavirus pandemic, according to Refinitiv data.

The CBOE volatility index, also known as Wall Street’s fear gauge, rose to 31 points after falling for six straight sessions.

Volume on US exchanges was 12.5 billion shares, compared with a 13.4 billion average over the last 20 trading days.

Declining issues outnumbered advancing ones on the NYSE by a 5.09-to-1 ratio; on Nasdaq, a 3.52-to-1 ratio favored decliners.

The S&P 500 posted one new 52-week high and 37 new lows; the Nasdaq Composite recorded 25 new highs and 242 new lows.

(Reporting by Amruta Khandekar and Devik Jain in Bengaluru and by Noel Randewich in Oakland, Calif.; Editing by Shounak Dasgupta and Lisa Shumaker)

Wall Street slides as growth stocks rally wanes

May 18 (Reuters) – US stock indexes fell on Wednesday as a rally in growth shares faded and Target slumped after the retailer became the latest victim of surging prices.

Shares of Target Corp (TGT) fell 25.1% to the bottom of the S&P 500 after its first-quarter profit halved and the company warned of a bigger margin hit on rising fuel and freight costs.

Shares of other retailers such as Walmart Inc (WMT), Gap Inc GPS.N, Kohl’s Corp. (KSS), Nordstrom Inc. (JWN), Costco (COST), Best Buy (BBY), Macy’s Inc. (M) and Dollar General Corp. (DG) dropped between 4.1% and 11.8%.

All of the 11 major S&P sectors declined in morning trade, with consumer staples and consumer discretionary sectors down 3.5% each.

“Input costs are very important for retailers. Until the supply chain disruption is sorted and labor costs come down, we’re going to continue to see retailers struggle,” Brooke May, managing partner at Evans May Wealth in Indianapolis, said.

Rising inflation, the conflict in Ukraine, prolonged supply chain snarls, pandemic-related lockdowns in China and prospects of aggressive policy tightening by central banks have weighed on the markets recently, stoking concerns about a global economic slowdown.

Federal Reserve Chair Jerome Powell told the Wall Street Journal on Tuesday that the U.S central bank will keep “pushing” on rate hikes until it sees inflation move down in a “clear and convincing way”, not hesitating to move more aggressively if that does not happen.

Traders are pricing in 50 basis point interest rate hikes by the Fed in June and July.

“The market is very concerned about higher rates and the Fed potentially overshooting and softening the economy,” May said.

“Higher rates will obviously eat into retail spending, in addition to corporate profits, and the market is just trying to digest that.”

The S&P 500 is down 15.6% so far in 2022 and the Nasdaq has fallen more than 24%, hit by growth stocks.

Rate-sensitive Big Tech and growth companies such as Microsoft Corp. (MSFT), Apple Inc. (AAPL), Google owner-Alphabet Inc. (GOOGL), Meta Platforms (FB), Tesla Inc. (TSLA) and Amazon.com (AMZN) fell between 1.7% and 4% after leading a sharp rebound on Wall Street in the previous session.

At 10:09 a.m. ET, the Dow Jones Industrial Average was down 488.86 points, or 1.50%, at 32,165.73, the S&P 500 was down 69.72 points, or 1.71%, at 4,019.13, and the Nasdaq Composite was down 203.08 points, or 1.69%, at 11,781.44.

Lowe’s Cos Inc. (LOW) fell 2.1% after reporting a bigger-than-expected drop in same-store sales, as demand eased for its home-improvement tools and building materials from pandemic highs.

However, TJX Cos Inc (TJX) climbed 11% after the discount store operator forecast upbeat annual profit helped by price increases.

The CBOE volatility index , also known as Wall Street’s fear gauge, rose to 27.84 points, after falling for six straight sessions.

Declining issues outnumbered advancers for a 2.76-to-1 ratio on the NYSE and a 1.94-to-1 ratio on the Nasdaq.

The S&P index recorded one new 52-week high and 30 new lows, while the Nasdaq recorded 26 new highs and 90 new lows.

(Reporting by Amruta Khandekar and Devik Jain in Bengaluru; Editing by Shounak Dasgupta)

Marcos set for supermajority as ‘Uniteam’ dominates Congress

MANILA, May 18 (Reuters) – Philippines president-elect Ferdinand Marcos Jr is all but certain to command a supermajority in Congress, a proclamation of winners showed on Wednesday, boosting chances of advancing his legislative agenda when he takes power next month.

All but two of the 12 candidates declared winners of Senate seats by the election commission were allied with Marcos’s “Uniteam” political juggernaut, adding to a new lower house revealed last week that was dominated by parties that sided with the presumptive president.

Marcos, the son and namesake of the disgraced dictator driven from power in a 1986 uprising, has yet to reveal a policy agenda, but many analysts expect him to continue from where outgoing leader Rodrigo Duterte left off.

“It will be easy for the incoming administration, given the support they have from the local government and political families, to get their way in terms of legislative agenda,” said Ranjit Rye, a political science professor at the University of the Philippines.

Marcos, 64, who won last week’s election in a landslide, inherits an economy on a stronger footing but will need to raise revenue for infrastructure and addressing big debts from Duterte’s pandemic borrowing.

A legislative majority was expected and Marcos’s opponents have expressed fear he will use it push through constitutional changes to entrench his family’s rule for decades to come.

Marcos Jr’s crucial alliance with running mate and incoming vice president Sara Duterte-Carpio – the president’s daughter – could ensure support in Congress and co-opt politicians loyal to her father, who also enjoyed majority legislative support.

The new senators join 12 incumbents who were elected in mid-term polls in 2019, most of those Duterte supporters.

Widely expected to become Senate president is Cynthia Villar, wife of a billionaire, whose son also won a Senate seat having campaigned under Marcos’s “Uniteam”.

Marcos’s cousin, Ferdinand Martin Romualdez, is likely to become lower house speaker, according to political analysts, having received pledges of support from the overwhelming majority of the 300 newly lower house lawmakers, among them Marcos’s eldest son.

Cristina Palabay, secretary general of rights group, Karapatan, said the backing Marcos will have does not bode well for checks and balances.

“It is worrisome that Marcos and Duterte allies will have supermajority,” Palabay said.

“His priorities and agenda can be anything that is consistent with his father’s policies and politics, and to Duterte’s.”

(Reporting by Neil Jerome Morales; Additional Reporting by Karen Lema; Editing by Martin Petty)

Space narrowing for Philippines’ accommodative policy

MANILA, May 18 (Reuters) – The space for maintaining the Philippine central bank’s accommodative monetary policy has narrowed and authorities stand ready to make adjustments, its governor said on Wednesday, a day ahead of its policy meeting.

Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno said the domestic economy’s faster-than-expected growth in the first quarter, at an annual pace of 8.3%, and ongoing downside risks “strengthen the case for a withdrawal of monetary policy accommodation”.

The BSP is expected to raise the overnight reverse repurchase facility rate PHCBIR=ECI by 25 basis points to 2.25% on Thursday to curb rising inflationary pressures, according to most economists in a May 12-16 Reuters poll.

“Second-round effects are starting to manifest,” Diokno told a media briefing, referring to the inflationary pressures that drove the annual headline figure to 4.9% in April, soaring above the 2%-4% target band this year.

“Inflationary pressures now appear more likely to persist and threaten to disanchor inflation expectations,” he said.

A rate rise on Thursday will be the BSP’s first since 2018.

Diokno said average inflation could settle above 4% this year, but is expected to drop back within the same target range of 2%-4% in 2023.

Economists in the Reuters poll also expected the BSP to pick up the tightening pace, with a majority anticipating the benchmark rate to rise to 2.50% by end-September, while the rest predicted it will reach 2.75% or higher.

More interest rate rises are on the way, with rates reaching 3.00% by end-2022, the Reuters poll median showed, up from 2.50% predicted in the previous survey.

Diokno said any policy adjustment will be done “in a timely manner” but did not give a detailed timeline.

The BSP slashed interest rates by a cumulative 200 basis points in 2020 to help revive an economy that had plunged into recession due to prolonged and stringent COVID-19 lockdowns.

(Reporting by Neil Jerome Morales and Enrico Dela Cruz; Editing by Martin Petty and Kanupriya Kapoor)

Fed’s Evans backs ‘front-loaded’ rate hikes, then measured pace

By Dan Burns

May 17 (Reuters) – Chicago Federal Reserve Bank President Charles Evans on Tuesday said he supports an initial burst of monetary policy tightening, and then a more “measured” pace of rate hikes to allow time to assess inflation and the impact of higher borrowing costs on the job market.

“I think front-loading is important to speed up the necessary tightening of financial conditions, as well as for demonstrating our commitment to restrain inflation, thus helping to keep inflationary expectations in check,” Evans said in remarks prepared for delivery to Money Marketeers of New York University.

Inflation, running at more than three times the Fed’s 2% target, is “much too high,” Evans said, and the Fed should raise its policy rate “expeditiously” to a neutral range of about 2.25%-2.5%.

Fed policymakers have begun doing so. They raised rates by a bigger-than-usual half-of-a-percentage point earlier this month, to a range of 0.75%-1%, and Fed Chair Jerome Powell signaled at least two more such rate hikes to come. The Fed also plans to start trimming its $9 trillion balance sheet next month.

But Evans’ preference for transitioning to a more “measured pace” – a phrase that in the past has meant quarter-point rate hikes — sounded a bit more dovish than Fed Chair Jerome Powell, who spoke earlier in the day.

The central bank, Powell told the Wall Street Journal on Tuesday, will keep “pushing” on rate hikes until it sees inflation move down in a “clear and convincing way” and will not hesitate to move more aggressively it that does not happen. nL2N2X9228

Evans said that slowing the pace of rate hikes after an initial front-loading would give the Fed time to check if supply chain kinks ease, and to evaluate inflation dynamics and the impact of higher borrowing costs on what called a “downright tight” labor market.

Unemployment is at 3.6% and job openings are at a record high.

“If we need to, we will be well positioned to respond more aggressively if inflation conditions do not improve sufficiently or, alternatively, to scale back planned adjustments if economic conditions soften in a way that threatens our employment mandate,” Evans said.

With inflation pressures as broad and strong as they are, he said, interest rates may need to rise “somewhat” above neutral to bring down inflation.

Traders are betting on that, with prices in futures contracts tied to the Fed’s policy rate reflecting expectations for an end-of-year policy rate range of 2.75%-3%.

But in Evans’ view that doesn’t mean the Fed will end up triggering a recession, as critics including several former U.S. central bankers have recently warned. nL2N2WX21P

“Given the current strength in aggregate demand, strong demand for workers, and the supply-side improvements that I expect to be coming, I believe a modestly restrictive stance will still be consistent with a growing economy,” Evans said.

(Writing by Ann Saphir; Editing by Sandra Maler)

((Ann.saphir@thomsonreuters.com))

Consumer stocks diverge as Walmart disappoints, citing inflation

May 17 (Reuters) – Shares in consumer discretionary and staples stocks were trading in opposite directions on Tuesday as encouraging retail sales data was countered by disappointing earnings and financial targets from Walmart (WMT), which blamed high inflation.

Walmart shares closed down 11.4% after it reported a 25% quarterly earnings decline and cut its full-year profit outlook due to rising fuel and labor costs, while shoppers, squeezed by decades-high inflation on basic needs like food, reined in purchases of nonessential items.

That put Walmart shares on track for its biggest daily percentage drop since an 11.79% tumble on Oct 16, 1987, the last trading session before the “Black Monday” stock market crash in which the Dow Jones Industrial Average plunged more than 22%.

Dragged by Walmart, shares in Target Corp. (TGT) finished down over 1% ahead of its earnings report due Wednesday morning. Dollar General (DG) and Dollar Tree (DLTR) both fell 3%.

But while the S&P 500 consumer staples sector declined 1%, the benchmark’s consumer discretionary sector gained 2.7% as some clothing, travel and automaker shares gained ground.

Data showed US retail sales rose strongly in April as consumers spent more on motor vehicles due to supply improvements. They also spent more at restaurants, boosting the economy at the start of this quarter.

The contrast, according to some strategists, is because soaring inflation has a bigger impact on lower-income customers who shop at Walmart or dollar stores than consumers who can still buy pricier items from companies including Under Armour (UAA), up 4%, Ralph Lauren (RL), up 3.8% and PVH Corp. (PVH) up 3.4%.

Since price increases resulting from the war between Russia and Ukraine were in purchases “the consumer cannot do without” such as food and energy, Eric Theoret, global macro strategist at Manulife said, the lower-income consumers are seeing “real income shock.”

“In terms of ability to spend, the lower-end consumer is also much closer to having exhausted their pandemic savings. With respect to earnings, we are seeing solid wage gains at the lower quintiles but even these are unable to keep pace with inflation – eroding consumers’ ability to spend,” Theoret said.

This trend was also in evidence in shares of packaged food companies such as Kraft Heinz (KHC), down 2% and General Mills (GIS), down 0.7%, after Walmart said shoppers switched to cheaper store-branded goods from well known labels.

Still, while some wealthier consumers are also looking for grocery store savings, the retail sales data showed that people still have money to spend, noted Lindsey Bell, chief markets and money strategist at Ally.

“The consumer is still spending. The consumer isn’t dead … The consumer is really interested in spending their money on services and experiences,” said Bell, noting that it might be part of the reason clothing store shares were rising.

“Going out, taking part in different activities requires you dress the part,” she said.

Also, so far in 2022, the staples sector has outperformed, showing a 1% year-to-date decline compared with a plunge of about 25.9% in consumer discretionary stocks.

“Investors are starting to realize they left consumer discretionary sector stocks in general for dead with a big exit from the discretionary sector and into staples,” said Bell.

Jim Paulsen, chief investment strategist at The Leuthold Group in Minneapolis, noted that even though consumers are very fearful right now, “they are in really good shape.”

“Almost every fear we have is really tied to one fear – inflation,” said Paulsen. But he believes inflation may be stabilizing, which would mean investors and consumers can also stop worrying about things like rising bond yields, Federal Reserve rate hikes or an imminent recession.

“If inflation is rolling over it’s going to lift consumer confidence. I think it’s going to run right through Main Street as well as Wall Street,” he said.

(Reporting By Sinéad Carew, additional reporting by Chuck Mikolajczak; Editing by David Gregorio)

Wall Street rises on gains in banks, strong retail sales data

May 17 (Reuters) – US stocks climbed on Tuesday, as Citigroup led a surge in bank shares after Berkshire Hathaway disclosed a big stake and solid retail sales in April eased concerns about slowing economic growth.

Nine of the 11 major S&P sectors advanced in morning trade, with financials up 2.3% and technology 1.8%.

Microsoft Corp. (MSFT), Apple Inc. (AAPL), Tesla Inc. (TSLA) and Nvidia Corp. (NVDA) gained between 1.4% and 4%, providing the biggest boost to the S&P 500 and the Nasdaq.

Banks jumped 3.5%, with Citigroup (C) climbing 7% after Warren Buffett’s Berkshire Hathaway (BRKa) disclosed a nearly USD 3 billion investment in the US lender.

US retail sales increased strongly in April as consumers bought motor vehicles amid an improvement in supply and frequented restaurants, providing a powerful boost to the economy at the start of the second quarter.

“Retail sales is one of the core data points that the Fed will look at as it thinks about how aggressive (it needs) to be to rein in inflation,” said Greg Bassuk, chief executive at AXS Investments in New York.

“It should allay some of those (recession) concerns on the basis that it is a positive signal on the trajectory and potential health of the US economy further into 2022.”

Fed Chair Jerome Powell is scheduled to speak later in the day and his comments would be parsed for clues on the path of future interest rate hikes. Traders now see a nearly 80% probability of a 50-basis point rate hike in June.

At 10:09 a.m. ET, the Dow Jones Industrial Average was up 292.68 points, or 0.91%, at 32,516.10, the S&P 500 was up 49.19 points, or 1.23%, at 4,057.20, and the Nasdaq Composite was up 186.51 points, or 1.60%, at 11,849.30.

However, rising costs weighed on Dow component Walmart Inc. (WMT), which fell 8.6% after the retail giant cut its annual profit forecast, signaling a bigger hit to margins.

Shares of rival retailers Costco (COST), Target (TGT), Dollar Tree (DLTR) slipped between 0.6% and 2.2%.

Home Depot Inc. (HD) added 1.9% after raising its full-year sales forecast on firm demand for home improvement tools and building materials.

United Airlines Holdings Inc. (UAL) rose 6.1% after the carrier lifted its current-quarter revenue forecast, boosting shares of Delta Air (DAL), American Airlines (AAL) and Spirit Airlines (SAVE).

A positive first-quarter earnings season has been overshadowed by worries about the Ukraine war, soaring inflation, COVID-19 lockdown in China and aggressive policy tightening by central banks.

The S&P 500 is down nearly 2% and the Nasdaq 3.9% so far in May, largely hit by declines in growth stocks.

US-listed Chinese stocks jumped on hopes that China will ease its crackdown on technology sector and COVID-19 pandemic.

Advancing issues outnumbered decliners by a 4.05-to-1 ratio on the NYSE and a 3.95-to-1 ratio on the Nasdaq.

The S&P index recorded one new 52-week highs and 29 new lows, while the Nasdaq recorded 18 new highs and 100 new lows.

(Reporting by Amruta Khandekar and Devik Jain in Bengaluru; Editing by Arun Koyyur)

Oil falls 2% on Powell comments, hopes for Venezuela supply

NEW YORK, May 17 (Reuters) – After hitting seven-week highs, oil prices slumped 2% on Tuesday as Reuters reported that the United States could ease some restrictions on Venezuela’s government, raising hopes that the market could see some additional supplies.

Prices also fell after Federal Reserve Chairman Jerome Powell warned the economy could be hurt by attempts to reduce inflation.

For the first time since May 2020, the Brent international benchmark settled below US West Texas Intermediate crude. Refiners worldwide have scrambled to find alternative energy supplies after Russia’s invasion of Ukraine. US reserves are falling and that has raised the price for US-based crudes, said Andrew Lipow, president of Lipow Oil Associates in Houston.

Brent crude fell USD 2.31, or 2%, to settle at USD 111.93 a barrel, and US West Texas Intermediate (WTI) crude fell USD 1.8, or 1.6%, to settle at USD 112.40 a barrel.

Powell suggested there could be some economic pain involved in bringing inflation down. The US central bank will “keep pushing” to tighten US monetary policy until it is clear that inflation is declining, he said.

“Some of those comments tempered buying enthusiasm on the oil side,” said Phil Flynn, an analyst at Price Futures Group.

US President Joe Biden’s administration will authorize US oil company Chevron Corp. (CVX) to negotiate with Venezuelan President Nicolas Maduro’s government as soon as Tuesday, Reuters reported, citing sources. There is no final US decision yet on renewing Chevron’s current limited license to operate in Venezuela, the source said.

Oil prices have generally been rising as Russian supply is squeezed by bans from several countries and an economic downturn due to broad sanctions on Moscow imposed by the United States and allies.

Russia’s production dropped by 9% in April, and the country, part of the OPEC+ group, produced far below levels required under a deal to gradually ease record output cuts made during the worst of the pandemic in 2020.

This month, non-Russian deliveries into the Polish port of Gdansk hit the highest in at least seven years, as refiners in eastern Germany and Poland switched.

“Ultimately, this is a supply-side story,” said Fawad Razaqzada, analyst at City Index. “Unless OPEC and its allies ramp up production and fast, it is difficult to see how prices can go down meaningfully.”

EU foreign ministers failed on Monday in their effort to pressure Hungary to lift its veto on the proposed oil embargo. But some diplomats now point to a May 30-31 summit as the moment for agreement on a phased ban on Russian oil.

US crude and gasoline stocks fell last week, according to market sources citing American Petroleum Institute figures on Tuesday. US government data is due on Wednesday.

(Reporting by Stephanie Kelly in New York; additional reporting by Alex Lawler in London, Isabel Kua in Singapore and Yuka Obayashi in Tokyo; Editing by Marguerita Choy, Louise Heavens, David Gregorio and Cynthia Osterman)

Wall Street falls as growth stocks, glum China data weigh

May 16 (Reuters) – Wall Street’s main indexes fell on Monday as downbeat data out of China added to worries about a global economic slowdown against the backdrop of aggressive policy tightening by the US Federal Reserve.

Chinese and European stock markets fell, while oil slid as data showed China’s economic activity cooled sharply in April as COVID-19 lockdowns took a heavy toll on consumption, industrial production and employment.

Nine of the 11 major S&P sectors declined in morning trade. Technology .SPLRCT and consumer discretionary stocks fell 1.6% and 1.8%, respectively.

Big growth companies such as Amazon.com (AMZN), Alphabet Inc. (GOOGL), Microsoft Corp. (MSFT), Apple Inc. (AAPL), Tesla Inc. (TSLA) and Nvidia Corp. (NVDA) slipped between 1.1% and 2.6%.

Energy shares outperformed and were up 1.5%.

Wall Street closed sharply higher on Friday, but still the S&P 500 and the Nasdaq indexes posted their longest weekly losing streaks in over a decade.

“Investors are just a little bit skeptical. They’re just sort of testing the waters to see if the rally is going to continue or go back down,” said Robert Pavlik, senior portfolio manager at Dakota Wealth Management.

“We’re clearly not out of the woods as far as the economy is concerned. We haven’t seen inflation peak yet, we can retest those lows and possibly move even lower.”

Investors have been worried that aggressive interest rate hikes by the Fed to combat decades-high inflation could tip the US economy into recession, with the conflict in Ukraine, supply chain snarls and the latest pandemic-related lockdowns in China exacerbating the situation.

Data on Monday showed factory activity in New York state slumped in May for the third time this year amid a collapse in new orders and shipments.

The S&P 500 and the tech-heavy Nasdaq have fallen 16.2% and 25.8%, respectively, so far this year, with growth stocks taking a hit on concerns that bigger interest rate hikes could hurt their future cash flows.

Traders are now pricing a near 86% chance of a 50 basis point hike by the Fed in June.

At 9:49 a.m. ET, the Dow Jones Industrial Average was down 231.10 points, or 0.72%, at 31,965.56, the S&P 500 was down 37.13 points, or 0.92%, at 3,986.76, and the Nasdaq Composite was down 148.58 points, or 1.26%, at 11,656.42.

Focus is now on the retail sales report due on Tuesday, after worrying inflation and consumer sentiment data last week.

Retailers such as Walmart Inc. (WMT), Home Depot (HD) and Target Corp. (TGT) are due to report their quarterly results this week.

Spirit Airlines (SAVE) jumped 8.2% after JetBlue Airways (JBLU) launched a hostile all-cash takeover bid for the discount carrier. JetBlue shares slipped 3.4%. Shares of rival bidder Frontier Group Holdings (ULCC) gained 3.9%.

Netflix Inc. (NFLX) rose 1.4% after Wedbush upgraded the streaming pioneer’s stock to “outperform” from “neutral”.

Declining issues outnumbered advancers for a 1.56-to-1 ratio on the NYSE and a 1.42-to-1 ratio on the Nasdaq.

The S&P index recorded one new 52-week high and 29 new lows, while the Nasdaq recorded 10 new highs and 60 new lows.

(Reporting by Amruta Khandekar and Devik Jain in Bengaluru; Editing by Sriraj Kalluvila and Shounak Dasgupta)

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