U.S. stocks declined on Tuesday as Tesla Inc. and Apple Inc. highlighted slowing demand, stoking concern about what lies ahead for growth stocks and the U.S. economy as the Federal Reserve prepares to keep raising interest rates. Treasuries advanced and the dollar climbed the most in nearly three weeks. 

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The S&P 500 and the Nasdaq 100 ended the first trading session of 2023 in the red, but came off session lows as the closing bell rang. Apple’s decline, as concerns about iPhone supply mount, pushed the firm’s market value below US$2 trillion. The firm has told suppliers to make fewer components for some of its products because of withering demand. Tesla fell the most since 2020 after it delivered fewer vehicles than expected last quarter. 

Treasury yields declined across the curve. Oil fell the most since November as mild winter temperatures in several parts of the world assuaged fears of an energy crisis. 

Investors, still on the edge after their wagers about the Fed’s path missed the mark in 2022, expect a volatile year of trading as uncertainty about the U.S. economy persists. Fed policy will dictate how stocks and bonds perform this year, with some traders already seeking opportunities resulting from risk assets getting sold off. 

Recession concerns continue to linger, with former New York Fed President William Dudley saying that an imminent slowdown won’t be severe, while investors continue to mull the impact the central bank’s tightening will have on the economy. Investors will be paying attention to the jobs report this week, as softening in the labor market remains the Fed’s focus. 

“What worries the markets going into the year is how deep the recession is likely to be,” Sam Stovall, chief investment strategist at CFRA, said on Bloomberg Television. “I think very few people believe we will miss a recession altogether, especially when we have such an inverted yield curve and now are expected to fall into an earnings recession.”

Stovall says that after a down year, investors would be better off gravitating toward the worst performing sectors because their stocks have likely been battered and many may be priced to go out of business.

“But if they don’t, they are the ones that have the greatest upside potential,” he said. “When the market mood does swing, that is where the opportunity will be in terms of the vacuum of valuations.”

Meanwhile, stocks in China and Europe closed Tuesday’s session higher as signs that Covid infections may have peaked in some of China’s biggest cities buoyed sentiment. The Stoxx Europe 600 Index and the Hang Seng Index notched gains of more than 1 per cent each.

However, China’s economy may not get the “outsized boost” people are expecting, Matt Maley, chief market strategist at Miller Tabak + Co., wrote in a note. Chris Senyek of Wolfe Research also isn’t bullish about China’s reopening.

“In our view, there is still a massive amount of uncertainty there, and whenever growth does begin to re-accelerate, inflation headwinds are more likely than not to offset global growth tailwinds,” he said in a note. 

The main markets moves are:

Stocks

• The S&P 500 fell 0.4 per cent as of 4 p.m. New York time
• The Nasdaq 100 fell 0.7 per cent
• The Dow Jones Industrial Average was little changed
• The MSCI World index rose 0.2 per cent

Currencies

• The Bloomberg Dollar Spot Index rose 0.7 per cent
• The euro fell 1.1 per cent to US$1.0552
• The British pound fell 0.6 per cent to US$1.1973
• The Japanese yen fell 0.1 per cent to 130.98 per dollar

Cryptocurrencies

• Bitcoin fell 0.6 per cent to US$16,654.68
• Ether fell 0.7 per cent to US$1,210.4

Bonds

• The yield on 10-year Treasuries declined nine basis points to 3.78 per cent
• Germany’s 10-year yield declined six basis points to 2.39 per cent
• Britain’s 10-year yield declined two basis points to 3.65 per cent

Commodities

• West Texas Intermediate crude fell 3.8 per cent to US$77.20 a barrel
• Gold futures rose 1 per cent to US$1,843.70 an ounce