Health care companies and Tesla led the market lower on Tuesday, sparking concerns about their upcoming profits. The U.S. government announced lower-than-expected rates for Medicare Advantage, causing shares of companies like Humana to tumble 13.6%. Meanwhile, Tesla dropped 5.7% after delivering fewer vehicles than analysts had predicted for the start of 2024.
The U.S. stock market has been on a strong run in recent months, largely due to expectations that the Federal Reserve will cut interest rates multiple times this year. However, Fed officials have indicated that they need further confirmation that inflation is heading sustainably down to their 2% target before taking action. A recent report showing a return to growth in U.S. manufacturing after 16 months of contraction has complicated these expectations.
Traders have adjusted their expectations for interest rate cuts, with some now predicting just two cuts this year instead of the previously forecasted six. Despite this, many traders still expect three cuts to occur, potentially starting in June.
In the bond market, the yield on the 10-year Treasury rose slightly, while the two-year yield slipped. High interest rates can slow economic growth and impact investment decisions, as seen with the drop in Bitcoin prices.
On Wall Street, health care stocks like UnitedHealth Group and CVS Health saw significant declines, while PVH, the company behind Calvin Klein and Tommy Hilfiger, lost over 20% of its value despite reporting stronger profits than expected.
Oil and gas producers, on the other hand, saw gains as the price of crude oil rose. Exxon Mobil and ConocoPhillips both climbed, following the increase in oil prices.
In global markets, European stocks were down, with Paris and Germany’s DAX losing over 1%. In Asia, indexes were mixed, with Hong Kong’s Hang Seng jumping 2.4%.
Overall, the market remains volatile as investors navigate changing expectations around interest rates and economic growth.
