Stock market today: Wall Street falls and takes a step back after its big rally

NEW YORK — Stocks pulled back Tuesday in their first trading after a five-week rally carried Wall Street to its highest level since spring of last year.

The S&P 500 fell 20.88 points, or 0.5%, to 4,388.71. The Dow Jones Industrial Average dropped 245.25, or 0.7%, to 34,053.87, and the Nasdaq composite lost 22.28, or 0.2%, to 13,667.29.

American flags fly outside the New York Stock Exchange on Sept. 23, 2022, in New York.  

The U.S. stock market took a step back following many steps forward on hopes the economy can avoid a recession and inflation is easing enough for the Federal Reserve to stop raising interest rates soon. A frenzy around artificial intelligence has also vaulted a select group of tech stocks to huge gains.

Those hopes are battling against worries that stubborn inflation will force the Fed to keep interest rates higher for longer, which could grind down the economy. With some of the easiest improvements in year-over-year inflation soon to be lapped, a tougher road may be ahead for both the economy and financial markets.

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“Leaning on the lessons of the 1970s, the Fed is right to be cautious, even if that represents an inconvenient truth for stock investors,” said Lisa Shalett, chief investment officer of Morgan Stanley Wealth Management.

During the ’70s, inflation remained high for much longer than hoped, forcing the Fed to ultimately drive the economy into a painful recession by sharply hiking interest rates.

In China, meanwhile, the world’s second-largest economy is stumbling in its recovery following the relaxation of anti-COVID restrictions.

Tuesday marked the first trading for Wall Street following a meeting between Chinese leader Xi Jinping and U.S. Secretary of State Antony Blinken. It yielded no signs of progress from either of the world’s largest economies on Taiwan, human rights, technology and other issues of contention.

Most of Wall Street fell, with four out of five stocks in the S&P 500 lower.

Worries about the global economy’s strength dragged down prices for crude oil and stocks of companies that pull it from the ground. Energy stocks fell 2.3% for the largest loss among the 11 sectors that make up the S&P 500. 

In the bond market, the yield on the 10-year Treasury fell to 3.71% from 3.77% late Friday. The two-year yield slipped to 4.68% from 4.72%.

This upcoming week doesn’t have many potentially market-moving events coming off a Monday closure in observance of the Juneteenth national holiday. 

Fed Chair Jerome Powell will testify before Congress on Wednesday and Thursday. Last week, the Federal Reserve held its benchmark lending rate steady but also warned it could raise rates twice more this year.