S&P 500 falls under 4600 to hits fresh annual lows as Fed tightening fears, weak Goldman earnings weigh

US equity markets experienced broad selling pressure on Tuesday, with the S&P 500 dropping 1.8% to slide back below 4600 and hit fresh annual lows, the Dow dropping 1.5% to slip under 35.5K and the Nasdaq 100 losing over 2.5%. Market commentators generally referred to “Fed tigthening fears” as the major driver of the downside. Michael O’Rourke, chief market strategist at JonesTrading commented that “we're having a repricing going on as the market prepares for interest rate hikes and we still have a bit of a ways to go to prepare for three rate hikes or four rate hikes”.

Despite a sharp rise in US government bond yields that hit tech/growth names hard (hence Nasdaq 100 underperformance), financial stocks were unable to benefit, with the S&P 500 GICS financials sector losing over 2.0% on downbeat Goldman Sachs earnings. Shares of the bank lost over 7.0% and hit their weakest levels since last May after earnings missed bottom-line expectations amid weak trading activity. The only sector in the green was energy, with the S&P 500 GICS sector up 0.2% amid a surge in oil prices to multi-year highs (with WTI near $86.00 per barrel).

In terms of the other major GICS sectors, the big tech-heavy Information Technology and Communication Services sectors lost 2.4% and 1.9% respectively while the Consumer Discretionary sector lost 2.0%. Consumer Staples, Industrials, Health Care, Materials and Utilities all lost between 1.1% to 1.6%. The broad selling pressure on Tuesday market a change in conditions compared to recent sessions which had been characterised more by rotation between “value” (incoming generating, low multiple) names to “growth” (low incoming generating, high multiple) names. As Fed rate hike expectations have amped up in sessions, investors have dumped growth stocks in favour of value.

The S&P 500 value index is down just 0.4% over the past five-session versus 2.7% losses in the S&P 500 growth index. Recent investment bank surveys allude to the souring of sentiment towards tech/growth names. BoA fund manager survey on Tuesday showed managers had aggressively cut their overweight tech positions to the lowest levels since 2008. Meanwhile, a survey conducted by Deutsche Bank found that most respondents see the US technology sector as in a bubble.