U.S. stocks came well off the day's lows, with the Nasdaq turned positive Tuesday afternoon, even as concerns over the potential for a deeper economic downturn persisted among investors.
By market close, the S&P 500 edged up by 0.16% after falling as much as 2.2% earlier in the session. The Dow ended lower by about 130 points, or 0.4%, to close at 30,967.45. The Nasdaq Composite closed the session up by 1.76% after spending the morning in negative territory.
Energy prices came under renewed pressure, with West Texas intermediate crude oil futures dipping below $100 per barrel and posting its largest decline since March at session lows. Treasury yields extended last week's slide, and the benchmark 10-year yield fell below 2.9%.
"Stock prices are down. Treasury yields are down. Oil prices are down. Corporate credit spreads are wider. The dollar exchange rate is higher. This is a recession trade," Neil Dutta, head of U.S. economics at Renaissance Macro Research, wrote in an email Tuesday morning. "There is no other way of describing it."
Concerns over inflation and whether higher prices might catalyze a downturn in the economy or spur the Federal Reserve to tighten monetary policy further at the expense of economic growth have kept a weight on equities even amid short-lived bear market rallies. Federal Reserve officials have so far maintained the contral bank's hawkish stance, and Fed Chair Jerome Powell said in public remarks last week that there was “no guarantee” the Fed could avoid a hard landing.
The S&P 500 posted its worst first half of a year since 1970, and the Dow since 1962, with each of the major averages sliding by double-digit percentages since the start of 2022. The U.S. economy has recently shown some signs of softening, with consumer confidence sliding and short-term expectations sinking to a near decade-low in addition to spending falling for the first time this year in May.
"Last week's data performance, including a downward revision to Q1 GDP and evidence of sustained deceleration in consumer spending, suggests the U.S. economy is clearly losing momentum in the face of soaring inflation and tightening financial conditions," Wells Fargo Senior Economist Sam Bullard wrote in a note Tuesday.
Further critical economic data is due out this week, including Friday's non-farm payrolls report. Economists are looking for a more tepid 275,000 jobs to have come back in June, which would mark a sharp slowdown from the prior month's 390,000. And the unemployment rate is expected to hold steady at 3.6%, for just a tick above February 2020's pre-pandemic low of 3.5%. And on Wednesday, the Federal Reserve is poised to release the minutes of its June meeting, which set the stage for the central bank's first 75 basis point rate hike since 1994.
"The current hawkish tone should be pervasive throughout following the actions of a stepped-up 75 basis point federal funds rate hike and the explicit commitment to continue tightening aggressively until officials see 'clear and convincing' signs that inflation is coming down to target," Wells Fargo's Bullard stated. "We will be on the lookout for clues as to what inflation evidence officials are monitoring to help make that call."
Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter.