OXY Occidental Petroleum Corporation

By Will Horner, Caitlin McCabe and Xie Yu 

Investors around the world retreated from stocks Tuesday as a selloff in technology companies spread to other sectors of the market, leading to broad declines across major U.S. indexes.

The Dow Jones Industrial Average tumbled about 450 points, or 1.3%, in recent trading, on pace for its worst one-day drop since late February. The S&P 500 fell 1%. The Nasdaq Composite lost 0.4%.

Investors have become increasingly concerned about signs of inflation lately, forcing many money managers to pare back their positions in technology stocks. Growth stocks have traded lower for most of the past week, with the Nasdaq Composite down nearly 5% for May.

Yet on Tuesday, the selloff extended to shares of more economically sensitive companies as well, with all 11 sectors of the S&P 500 trading lower. Companies including Occidental Petroleum, Gap and Royal Caribbean posted declines of 3% or more. Shares of large growth companies also tumbled, with Tesla falling 2.2% and Apple dropping 1.6%.

The declines sent the Cboe Volatility Index, or VIX, known as Wall Street's fear gauge, trading higher. It traded as high as 23.73 intraday Tuesday, its highest intraday value since March 10.

Investors are betting that inflation is likely to climb steeply in coming months, driven by pent-up spending as well as supply bottlenecks and a leap in commodity prices. A sharp and sustained jump in inflation would erode returns on fixed-income assets and stocks whose valuations rely on future earnings. Some money managers are concerned that it may also prompt the Federal Reserve to pare back its easy money policies sooner than anticipated.

"Inflation is an issue that is on everyone's minds right now, and it is injecting a lot of uncertainty," said Peter Langas, chief portfolio strategist at Bessemer Trust. "The question is, how does the Fed react to that?"

Technology and growth companies are bearing the brunt of inflation concerns this year after leading the market's steep rally since last spring. Investors are increasingly worried that their high valuations may not be justified if inflation crimps the value of future earnings.

This week, those concerns have spilled over to other sectors as well, leading to a broader selloff.

"When inflation is rising quite rapidly and there is nothing around to contain it, that is when equities don't tend to perform well," said Seema Shah, chief strategist at Principal Global Investors. "For the last 10 to 20 years, inflation hasn't been a concern for investors and so, if you look at portfolios, they are not positioned for inflation risks."

Market heavyweights Apple, Google parent Alphabet and Facebook were among the tech stocks that retreated Tuesday, with each falling about 1.6% or more. Other technology companies also retreated: Semiconductor giant Intel lost 2.5%, while International Business Machines fell 1.9%.

In corporate news, Novavax shares plummeted 12% after the company said it delayed plans to seek regulatory clearance for its Covid-19 vaccine.

In bond markets, the yield on the 10-year U.S. Treasury note edged up to 1.623%, from 1.601% on Monday, marking its third consecutive trading day of gains. Yields rise as prices fall.

Comments Tuesday by John Williams, the president of the Federal Reserve Bank of New York, and Lael Brainard, a member of the Fed's board of governors, may offer fresh insights on how they view inflationary pressures and the course of U.S. interest rates. The Fed, under Chairman Jerome Powell, has stressed it won't be swayed by one-off price increases driven by economic reopening.

In commodities, Brent crude, the international energy benchmark, fell 0.2% to $68.15 a barrel.

Overseas, the pan-continental Stoxx Europe 600 dropped 2.1%. In Hong Kong, the Hang Seng Index fell 2%. Japan's Nikkei 225 slumped 3.1%, while South Korea's Kospi index retreated 1.2%.

Fresh data showed that factory-gate prices in China jumped last month by the most in 3 1/2 years, adding to concerns about inflationary pressures spreading globally.

Write to Will Horner at William.Horner@wsj.com, Caitlin McCabe at caitlin.mccabe@wsj.com and Xie Yu at Yu.Xie@wsj.com

(END) Dow Jones Newswires

May 11, 2021 11:53 ET (15:53 GMT)

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