Wall Street Sinks on Rate Worries

NEW YORK (AP) -- U.S. stocks are sinking Tuesday, as worries about interest rates staying high continue to hit Wall Street.

The S&P 500 was 1% lower in morning trading and on track for a second drop after setting an all-time high to close last week. The Dow Jones Industrial Average also pulled further from its record and was down 417 points, or 1.1%. The Nasdaq composite was 1.4% lower, as of 10:30 a.m. Eastern time.

Health care 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 13.6%. Tesla, meanwhile, dropped 5.7% after delivering far fewer vehicles for the start of 2024 than analysts expected.

One of the big reasons the U.S. stock market has been on a nearly unstoppable run since late October is the expectation that the Federal Reserve will cut interest rates several times this year. It's 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 that inflation is heading sustainably down to their 2% 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, but it could also add upward pressure on inflation. Progress on inflation has become bumpier recently, with 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.

Monday's manufacturing report pushed traders to shade some bets toward just two cuts this year, according to data from CME Group. But traders are still largely expecting three cuts this year, and for them to begin in June, after a report on Tuesday showed U.S. employers were advertising roughly the same number of job openings in February as they were a month earlier.

In the bond market, the yield on the 10-year Treasury rose to 4.36% from 4.33% late Monday.

The two-year yield, which moves more closely with expectations for Fed action, slipped to 4.69% from 4.71% late Monday.

High rates slow the economy by design, by making borrowing more expensive. They also hurt prices for investments by making it more attractive for investors to put money instead in safer alternatives. Bitcoin tumbled 5.4% and dropped back to $66,000.

Beyond worries about interest rates staying high, critics also say the U.S. stock market has simply gotten too expensive after soaring more than 20% in six months. Companies will likely need to deliver strong growth in profits to justify such big moves.

On Wall Street, several health care stocks led the market lower as worries rose about their upcoming profits. Analysts at Citi Research said the final Medicare Advantage rate approved by the government was well below expectations given higher-trending medical costs and a big lobbying push for the industry.

UnitedHealth Group fell 6.5%, and CVS Health lost 8.3%.

PVH, the company behind Calvin Klein and Tommy Hilfiger, lost more than a fifth of its value despite reporting stronger profit for the latest quarter than analysts expected. Its forecast for profit this upcoming year fell short of analysts' estimates, in part due to weakness in Europe, and its stock dropped 22.6%.

Among the few gainers on Wall Street were stocks of oil and gas producers. Exxon Mobil climbed 1.4%, and ConocoPhillips gained 1.2%

They followed the price of crude higher. A barrel of benchmark U.S. oil rose 0.8% to $84.39 and is back to where it was in October. A barrel of Brent crude, the international standard, climbed 0.8% to $88.15.

In Europe, stocks were falling 1% in Paris. Germany's DAX lost 1.1%, and London's FTSE 100 was 0.2% lower.

In Asia, indexes were mixed. Hong Kong's Hang Seng jumped 2.4%, but moves were much more modest elsewhere.